TP 
725 


J-NRLF 


1D3    737 


TWENTY-FIVE  YEAJIS  OF  REGULATED  MONOPOLY 


Another  Gliapter  in  the  Haverhill 
Gas  Case 


CLOSING  ARGUMENT  OF  G.  W.  ANDERSON 

on  the  petition  of  the  Mayor  and  City  Council  of  Haverhill,  fora  re- 
daction in  the  price  of  Gas  before  the  Board  of  Gas  and  Electric  Light 
Commissioners,  December  14,  1911 


Twenty-Five  Years  of   Regulated  Monopoly 


ANOTHER  CHAPTER  IN  THE 
HAVERHILL  GAS  CASE 


CLOSING  ARGUMENT  OF  G.  W.  ANDERSON 

on  the  petition  of  the  Mayor  and  City  Council  of  Haverhill,  for  a  reduc- 
tion   in    the    price   of    Gas   before  the    Board   of   Gas  and 
Electric  Light  Commissioners,  December  14,  1911 


OUTLINE   OF   ARGUMENT. 

I.     THE  PRESENT  SITUATION. 

Page 

New  management  has  decreased  candle  power  and  heat 
units  and  increased  pressure  so  that  gas,  (i.  e.,  light 
and  heat),  is  higher  today  at  85  cents  than  twelve 
years  ago  at  $1.00.  But  the  Company  has  paid  divi- 
dends averaging  over  34%  since  the  80  cent  order 
was  made 5-6 

Petition  12  years  ago  occasioned  by  Gas  Securities  scheme 
of  speculators  to  make  $75,000  gas  company  float 
$500,000  of  bonds  and  $500,000  stock 7 

New  petition  occasioned  by  attempt  to  have  old  Company 
sell  out  and  thus  get  $900,000  of  stock  in  a  Massa- 
chusetts corporation  so  as  to  charge  gas  consumers 
permanently  at  least  $54,000  a  year  for  use  of  only 
$75,000  \  7 

Failure  of  local  daily  papers  to  publish  truth  makes  print- 
.  ing  of  this  argument  necessary 8 

II.     HISTOEY  OF  ATTEMPT  TO  SETTLE  OLD   CASE. 

All  tentative  plans  of  Mayor  and  City  Government  con- 
ditioned on : 

(a)  Legality  of  plan  proposed  by  Company 10 

Gas  Commission  has  held  it  illegal 10 

(b)  Capital  only  for  fair  value 10 

Company  attempted  to  get  about  3  for  1 10 

Good  faith  of  City;  bad  faith  of  Company.  . .      11 
Gas  Commission  tricked  into  settling  80  cent 

order  without  notice  to  gas  consumers 12 

Gas  Company  thus  attempted  to  settle  legal 

debt  for  more  than  $350,000   by  payment  of 

$21,000  to  consumers 12 

Settlement  illegal,  vitiated  by  fraud 12 

New  scheme  much  worse  than  Securities 

scheme    ...  13 


III.     EEAL  ISSUE— FAIR  PEICE  FOR  GAS. 

Page 

( 1 )  Cost  at  burner 14 

Company    refused    to    give    estimates    of    its 

engineers  14 

Mr.  Adams'  figures, — best  evidence, — show  55 

cents  or  less,  fair  cost 15 

Comparison  with  other  cities  and  towns 15* 

Adams'  figures  high 16 

(2)  Capital  charge, — 10%   dividend  will  give  60 

cent   gas 16 

"FOREGONE  DIVIDENDS." 

Company  claims  dividends  on  more  than  $75,000.00, — 
capital  stock, — on  theory  that  former  stockholders  left 
dividends  in  to  extend  plant 17 

No  "foregone  dividends"  in  fact,  but  dividends  averaged: 
first  14  years,  51-5%;  next  5  years,  8%;  then  10% 
regularly,  from  1898  on  34% 20 

No  money  except  $50,000  original  capital  ever  "risked"  in 

business  21 

Stockholders  had  generous  returns,  on  average  of  years  to 

1898,  and  extortionate  returns  1898  to  1910 21 

REPRODUCTION  COST  THEORY  OF  CAPITALIZATION. 

Company  claims  14th  Amendment  of  United  States  Con- 
stitution overrides  Massachusetts  law  and  gives  Com- 
pany return  on  all  it  would  cost  to  reproduce  property 
today,  even  if  large  part  comes  from  excess  earnings. . .  -21 

New  York  Gas  Case  shows  U.  S.  Supreme  Court  will  not 
pervert  anti-confiscation  into  fraud  and  extortion  and 
will  enforce  rights  arising  under  State  law 22 

In  Massachusetts  capital  paid  in  has  always  been  distin- 
guished from  accumulations  of  profits 23 

When  Gas  Companies  in  1885  asked  legislation  to  protect 
them  against  destructive  competitors  they  agreed,  in 
effect,  to  rates  based  on  capital  stock 26 

After  1885  Gas  Commission  allowed  high  rates  in  order  to 
build  up  depreciation  funds,  on  express  understanding 
declared  in  Reports  that  such  excess  earnings  were  not 
to  be  basis  of  rates — nor  capitalized 27-28 

This  depreciation  fund  theory  is  found  in  Gas  Commission 

Reports  from  1889  to  1910 28 

M25&361 


Page 

Haverhill  Company  now  seeks  to  make  the  policy  of  Gas 

Commission  a  fraud  on  gas  consumers 29 

Attempt  is  to  compel  consumers  to  furnish  capital  and  then 

pay  a  return  on  it 30 

Company  holds  large  surplus  which  should  be  applied 
through  lower  prices  of  gas  to  benefit  of  its  equitable 
owners,  the  consumers 30 

Gas  at  50  cents  both  legal  and  just  in  Haverhill 31 

Gas  prices  too  high  in  Massachusetts  as  shown  by  fact  that 

stocks  sell  at  large  premiums , . . . .  32 

Lynn  has  75  cent  gas  and  stock  sells  at  $415 32 

Fourteenth  Amendment  Theory  is  unjust  to  investors  as 
well  as  public, — will  throttle  new  and  much  needed 
enterprises  33 

EEAL     REPRODUCTION     VALUE      OF     HAVERHILL 

PLANT. 
Great  value  of  Adams'  evidence 34 

Royce's  exaggerations  leave  no  weight  to  his  evidence ....  35 

Chase  and  Jackson — absurd  "gas  experts" 36 

Real  test  of  Reproduction  is  cost  of  equivalent  substitute 

plant,  located  in  best  available  place 38 

Adams'  valuation  of  all  property  used  and  necessary  to  be 

used  for  gas  purposes  $350,000, — these  figures  high.  .40-41 
Price  paid  no  evidence  of  real  value.  Stone  &  Webster 

anxious  to  stop  Municipal  Ownership  in  Massachusetts, 

and  paid  for  that  and  for  franchise, — not  for  plant. .     42 

IV.     COMPARISON  OF  25  YEARS   OF  PRIVATE  AND 

MUNICIPAL  OWNERSHIP. 
For  25  years  dividends  paid  for  use  of  $75,000,  average 

22  1-5%,  amounting  to  $416,623.86 43 

But  surplus  of  at  least  $10,000  a  year  has  also  been  extorted, 

making  average  of  $26,664.15  per  annum  or  35.5%  on 

capital   44 

Plant  could  probably  have  been  taken   25  years   ago   for 

$150,000  or  less,  which  could  have  been  borrowed  for 

$7,500  a  year 45 

Haverhill   could   have   saved   for  twenty-five   years   nearly 

$20,000  a  year  by  owning  and  operating  its  own  plant  45 
Private  ownership  has  cost,  for  capital  furnished,  more  than 

3l/2  times  as  much  as  municipal  ownership 45 

"Regulation  of  private  monopoly"  has  given  us  piracy;  we 

must  have  municipal  ownership 46 


CLOSING  ARGUMENT  OF  G.  W.  ANDERSON 


MR.  CHAIRMAN  AND  GENTLEMEN  OF  THE  COMMISSION  : — 

After  hearings  extending  over  about  eight  months,  the  taking 
of  nearly  1600  pages  of  evidence,  besides  numerous  elaborate 
tabulations,  computations  and  charts, — the  time  has  come  briefly 
to  review  some  salient  parts  of  this  evidence  and  to  submit  our 
views  as  to  what  is  a  fair  and  reasonable  price  to  be  charged  by 
the  Haverhill  Gas  Light  Company  to  its  consumers. 

I. 


THE  PEESENT  SITUATION. 

Twelve  years  ago  yesterday  I  argued  for  the  Mayor  of  Haver- 
hill  a  like  petition  seeking  a  reduction  in  the  price  of  gas.  It  is 
interesting  to  compare  the  situation  then  and  the  situation  now. 
At  that  time  the  company  was  furnishing  at  $1.00  per  thousand, 
net,  gas  of  an  average  candle  power  of  24.3,  costing  the  consum- 
ers obviously  a  little  over  4  cents  per  candle  power.  As  a  result 
of  the  evidence  adduced  on  that  petition  the  Commission  ordered 
a  reduction  to  80  cents  net.  The  Company  refused  to  obey  the 
order,  and  brought  a  bill  in  equity  in  the  Federal  Court  setting 
up  the  usual  allegations  of  confiscation  contrary  to  the  Four- 
teenth Amendment.  To  the  disgrace  of  the  Commonwealth  of 
Massachusetts,  the  case  was  never  brought  to  trial.  The  con- 
sumers were  left  until  July  1,  1909  to  pay  the  full  price  of  $1.00. 
The  regulated-price-by-commission  order  has  accomplished  noth- 
ing .for  the  citizens  of  Haverhill  during  these  12  years. 

At  the  present  time  the  price  of  the  Company  to  consumers 
is  85  cents.  But  the  candle  power  has  been  dropped  so  that  it 
is,  as  nearly  as  one  can  make  out  from  the  loose  and  unsatisfac- 
tory records  of  the  company,  probably  between  17  and  18  only, — 
or  nearly,  if  not  quite,  5  cents  per  candle  power, — an  increase  in 
cost  of  at  least  15%  to  20%;  that  is,  light  is  costing  the  con- 
sumers of  Haverhill  about  15%  more  today  than  it  was  12  years 
ago  today. 

As  to  heat,  the  evidence  is  not  so  clear.  We  do  know  that  the 
oil  enricher  nsed  in  the  water  gas  (there  being  no  coal  gas  now 


6 


made  in  Haverhill)  has  been  dropped  to  3i/>  gallons  per  thous- 
and. All  the  experts  agree  that  heat  units  diminish  as  oil  en- 
richer  is  diminished.  It  is  therefore  almost,  if  not  quite,  certain 
that  the  heat  furnished  by  the  Gas  Company  for  gas  stoves  and 
other  heaters  is  costing  more  today  than  it  did  12  years  ago  to- 
day. But  this  is  not  all :  When  the  present  management  took 
control  they  weighted  the  holder,  increasing  the  pressure, — 
claiming  that  this  was  necessary  in  order  to  furnish  an  adequate 
supply  in  Bradford  and  some  other  remote  districts.  If  there 
was  such  necessity,  it  grew  out  of  the  painful  inadequacy  of  the 
distribution  system,  due  in  considerable  part  to  the  fact  that  the 
company  has  an  extraordinary  amount  of  three  and  four  inch 
mains  where  mains  two  or  three  times  that  size  are  necessary. 
Certain  it  is  that  in  many  parts  of  the  city  the  increased  pressure 
has  resulted  in  bad  service, — that  the  gas  "blows,"  that  meters 
revolve  more  rapidly,  that  the  customer  gets  less  light  and  larger 
bills. 

To  summarize: — The  cost  of  gas, — meaning  by  "gas"  heat 
and  light  properly  available  for  the  customers'  use,  is  much 
higher  in  Haverhill  today  than  it  was  12  years  ago  today,  prob- 
abb  about  20%  higher. 

It  is  also  certain  that  the  new  Stone  &  Webster  management 
that  took  control  about  two  years  ago,  has  increased  the  cost  of 
gas,  although  they  have  dropped  the  apparent  price  from  $1  to 
85  cents ;  for  they  have  decreased  the  candle-power  and  the  heat 
units,  and  increased  the  pressure. 

HOT/  has  the  Company  fared  during  the  12  years  since  the 
previous  case  was  argued  and  this  Board  made  its  futile  and  un- 
enforcod  order?  The  capital  stock  of  this  company  is  $75,000. 
This  is  all  that  the  stockholders  have  in  any  form  paid,  directly 
or  indirectly,  to  the  establishment  and  maintenance  of  this  pub- 
lic utility.  The  Company  passed  out  of  the  hands  of  people 
whose  primary  purpose  was  that  of  making  and  distributing 
gas  at  a  fair  profit,  into  the  hands  of  persons  who  have  held  and 
used  their  control  mainly  for  speculative  purposes, — security- 
making  purposes, — in  1898  or  1899.  During  the  period  between 
the  year  ending  June  30,  1898,  and  the  year  ending  June  30, 
1910,  the  Company  has  paid  an  average  dividend  of  over  34%, — 
something  over  $25,000  per  year.  In  this  sum,  of  course,  is  in- 
cluded the  payments  made  and  put  upon  the  books  as  loans  to 
the  Haverhill  Gas  Securities  Company.  But  my  opponents 


agree,  as  indeed  they  must,  that  these  payments  are  to  be  treated 
as  though  declared  and  paid  as  dividends. 

The  immediate  occasion  of  the  petition  which  I  had  the  honor 
to  present  for  this  community  a  dozen  years  ago,  was  the  fact 
that  the  speculators  who  had  just  before  that  time  purchased 
the  M:ock  of  the  Haverhill  Gas  Light  Company  had  put  out, 
through  the  device  of  the  Haverhill  Gas  Securities  Company, 
$500,000  of  bonds  and  had  also  issued  $500,000  of  stock, — thus 
endeavoring  to  transmute  a  $75,000  gas  company  into  a  $1,000,- 
000  gas  securities  company,  and  to  sell  stocks  and  bonds  to  the 
investing  public,  the  sole  basis  of  value  in  which  was  the  expec- 
tation of  being  able  to  extort  in  prices  from  the  Haverhill  con- 
sumers (through  the  medium  of  this  legalized  monopoly  sup- 
posedly under  the  control  of  a  regulating  Commission)  sums 
adequate  to  pay — not  only  the  $25,000  per  year  upon  the  $500,- 
000  of  b%  bonds,  but  also  a  dividend  upon  $500,000  of  stock. 
This  Commission  was  then,  I  may  say,  appalled  to  discover  and 
to  see  in  concrete  form  some  of  the  results  of  15  years  of  sup- 
posed "regulation"  of  lighting  companies  in  this  Commonwealth. 
Nevertheless,  the  Board  has,  during  these  12  years,  utterly  failed 
to  extend  the  slightest  relief  to  this  community.  The  specula- 
tive scheme  succeeded:  This  gas-using  community  has  been 
taxed  to  pay  the  interest  on  $500,000;  even  the  stock  is  said  to 
have  brought  a  substantial  price;  so  strong  is  the  feeling  in 
financial  circles  that  "regulation"  will  continue  ineffective. 

The  present  occasion  of  my  being  invited  to  re-present  the 
cause  of  this  community  to  this  Board,  is  the  fact  that  some  two 
years  ago  Stone  &  Webster  purchased  all  the  stock  and  bonds  of 
the  Haverhill  Gas  Securities  Company,  and  with  the  assistance 
of  ingenious  counsel  ("hereupon  devised  a  scheme  to  transmute 
this  $75,000  gas  company  into  a  $900,000  gas  company;  the 
essential  difference  between  the  new  scheme  as  contrasted  with 
the  old  being  that  the  present  gas  company  was  to  sell  out  all 
its  plant  and  assets,  and  in  legal  effect  its  franchise,  to  a  new 
gas  company,  the  new  gas  company  petitioning  the  Board  for 
authority  to  issue  $900,000  of  stock, — the  alleged  reproduction 
cost  and  value  of  the  assets  thus  proposed  to  be  purchased, — on 
which  $900,000  they  made  the  modest  claim  of  the  right  to  earn 
a  dividend  of  at  least  6%.  This  obviously  would  have  subjected 
the  consumers  of  Haverhill  to  an  annual  capital  charge  of  at 
least  $54,000  a  year, — amounting,  with  a  population  of  about 


8 


44,000  or  45,000,  to  a  tax  of  about  $1.20  per  capita  to  be  levied 
upon  this  gas-using  community.  Put  in  another  way,  the  new 
proposition  was  that  hereafter  nearly  75%  per  annum  should 
be  paid  upon  the  only  assets  contributed  by  the  stockholders,  to 
wit  the  original  capital  stock  of  $75,000. 

Naturally,  when  this  last  scheme  became  publicly  known,  the 
community  revolted;  a  mass  meeting  was  held  and  resolutions 
passed  calling  upon  the  City  Council  to  take  legal  action  to 
thwart  this  scheme  of  permanent  extortion.  The  Commission 
has  already  ruled  in  the  proceeding  asking  for  the  approval  of 
an  issue  of  $900,000  of  stock  by  the  new  Company,  that  the 
scheme  is  illegal;  and  this  petition  for  a  reduction  in  price  is 
now  before  you  for  determination. 

Poor  gas  at  a  high  price,  with  enormous  dividends  to  specula- 
tors iri  gas  securities,  are  not  the  only  evils  from  which  this 
community  is  suffering  as  a  result  of  private  management  under 
legalized  monopoly.  We  find  here,  as  we  have  at  times  found 
almost  throughout  the  Commonwealth,  and  of  which  we  had 
long  and  sad  experience  in  Boston,  a  public  utility  company  in 
local  politics.  We  find  it  in  apparent  control  of  part  of  the 
local  press.  Throughout  this  controversy  it  has  been  obvious 
that  the  press  is  dominated  by  the  same  interests  that  dominate 
this  speculative  gas  scheme.  In  the  local  daily  paper  nothing  has 
been  published  showing  the  real  situation  to  the  citizens  of 
Haverhill.  The  news  published  has  been  misstatement  and  dis- 
tortion. It  becomes  necessary,  in  order  to  let  the  people  of 
Haverhill  know  what  their  city  government  is  really  trying  to  do 
for  them,  to  have  the  substance  of  this  argument  printed  and 
distributed  in  pamphlet  form  to  the  citizens  of  Haverhill. 

How  long  will  this  or  any  other  self-respecting  New  England 
community  endure  such  private  ownership  and  management  of 
a  public  utility,  unless  commission  control  can  be  made  more 
effective  ? 

II. 

THE  COMPANY'S  BELATED  PLEA  IN  BAE. 

Before  beginning  his  argument  yesterday,  Mr.  Tyler  for  the 
Gas  Company  filed  a  motion  to  dismiss  this  petition,  arguing 
that  the  Mayor  and  City  Council  are  estopped  to  maintain  it. 
All  the  facts  upon  which  he  rests  his  motion  for  an  estoppel 


were  known  to  him  and  were  before  the  Board  at  the  beginning 
of  the  hearings  on  this  petition.  It  is  therefore  clear  that,  even 
if  those  facts  constituted  an  estoppel,  the  Company  waived  u.~ 
right  by  going  to  trial  for  eight  months  at  large  expense  to  the 
city,  without  any  suggestion  of  an  estoppel. 

But  I  welcome  the  opportunity  afforded  by  his  bringing  into 
this  rate  case  some  of  the  historical  facts  relative  to  the  earlier 
petition  by  the  new  Haverhill  Gas  Company  for  permission  to 
issue  $900,000  of  stock,  to  deal  briefly  with  the  charge  made  by 
Mr.  Tyler  that  there  has  been  lack  of  good  faith  on  the  part  of 
this  municipality,  or  of  the  Mayor,  or  of  any  members  of  the 
City  Council,  in  any  of  their  dealings  with  the  men  who  have 
bought  up  the  stocks  and  bonds  of  the  Haverhill  Gas  Securities 
Company. 

In  substance,  Mr.  Tyler's  claim  is  that  both  the  City  and  the 
Mayor  of  Haverhill  are  estopped  to  claim  a  price  lower  than  85 
cents  by  reason  of  certain  negotiations  had  with  relation  to  a 
settlement  of  the  old  controversy.  The  situation  in  1909  was,  in 
brief,  that  the  consumers  had  been  since  1900  paying  $1.00  for 
gas,  with  a  right  to  recover  from  the  Company  20%  thereof 
unless  the  Federal  Court  held  this  80-cent  order  confiscation. 
This  claim  amounted  to  something  like  $300,000  to  $400,000,— 
in  my  opinion  a  perfectly  valid  debt.  The  City  had  started  to 
take  the  plant, — municipal  ownership  was  imminent.  The  plan 
of  Stone  &  Webster  was  to  settle  this  claim  of  $300,000  to 
$400,000,  by  rebating  10  cents  per  thousand  from  July  1, 
1909,— amounting  to  about  $21,000,  then  to  have  the  old  Com- 
pany sell  out  to  a  new  Company,  which  was  to  be  capitalized 
at  the  alleged  full  value  of  the  assets  taken  over;  the  price  of 
gas  was  also  to  be  reduced  on  July  1,  1911,  to  85  cents;  the  City 
was  also  to  get  certain  additional  benefits  by  way  of  an  agreed 
amount  for  taxes  and  in  a  lower  price  for  municipal  light. 

Obviously,  no  city  government  has  the  slightest  authority  to 
contract  with  any  gas  company  as  to  the  price  that  shall  be 
charged  by  that  gas  company  to  its  customers.  All  that  the 
Mayor  or  City  Government  may  do  is  to  institute  proceedings 
for  a  lower  price, — as  may  25  or  more  customers. 

But,  entirely  apart  from  any  inability  to  contract,  neither  the 
City  nor  any  official  thereof  ever  undertook  to  make  any  con- 
tract, ^"or  was  there  any  act  or  failure  to  act  on  the  part  of 
the  Mayor  or  any  city  official  savoring,  to  the  slightest  degree. 


10 


of  bad  faith.  Indeed,  the  men  now  in  control  of  this  situation 
are  the  last  in  the  world  who  can  afford  to  raise  in  this  case  the 
question  of  "good  faith  and  fair  dealings.''  Every  possibility  of 
arrangement  with  the  City  and  the  consumers  that  was  even 
suggested  by  the  Mayor  and  by  members  of  the  City  Council 
was  strictly  conditioned  upon  two  things : 

(a)  That  the  new  Company  should  "capitalize  at  an  amount 
not  exceeding  its  full  value  at  the  time  of  acquisition,  all  such 
property  as  it  has  and  from  time  to  time  shall  have  acquired," — 
referring  to  the  property  proposed  to  be  taken  over  from  the  old 
company  by  the  new  company  and  used  for  gas  purposes;  and 

(b)  That  the  issue  of  stocks  and  other  securities  by  the  new 
company  should  be  approved  by  this  Board  as  legal. 

(See  "Franchise"  p.  6.) 

In  fact,  when  the  proposition  was  presented  to  this  Board  of 
allowing  a  gas  company  to  sell  out  its  works  and  franchises  to 
another  gas  company  established  and  controlled  by  the  same  per- 
sons.— to  die  that  it  might  live  again, — an  arrangement  by 
which  $75,000  of  stock  was  to  be  transmuted  into  twelve  times 
that  sum.  $900,000, — the  Board  held  the  whole  proceeding  il- 


But  if  we  concede  that  coitnsel  for  Stone  &  Webster  may  have 
erred  in  believing  that  he  had  successfully  devised  a  legal  scheme 
for  watering  the  stocks  of  Massachusetts  lighting  companies, — a 
problem  which  has  hitherto  defied  the  ingenuity  of  all  the  other 
numerous  able  counsel  who  have  for  many  years  sought  to  ac- 
complish the  same  result, — and  that  this  error  of  law  involved 
no  breach  of  good  faith  on  the  part  of  the  new  owners,  what  shall 
we  say  as  to  their  breach  of  their  undertaking  to  capitalize  at 
ffnot  exceeding  the  full  and  fair  value"  of  the  property  taken 
over,  in  the  light  of  their  attempt  to  get  a  capitalization  of 
$900,000  on  property  not  worth  for  gas-making  purposes  sub- 
stantially more  than  one-third  that  sum?  Is  this  "good  faith" 
to  this  community  ? 

Nor  is  this  all:  The  circumstances  under  which  this  Board 
was  induced  in  August,  1910,  to  consent  to  the  entry  of  a  final 
decree  in  the  Federal  Court  enjoining  this  Board  and  the  At- 
torney General  of  the  Commonwealth  from  enforcing  the  per- 
fectly valid  order  of  this  Board  for  80-cent  gas,  made  in  1900, 
are  most  extraordinary  and,  I  must  say,  suspicious.  The  Board 
;n  srmie  way — the  circumstances  are  not  fully  disclosed — 


11 


induced  by  representatives  of  this  Company  to  assent  to  chat 
decree  on  the  understanding  on  the  part  of  the  Board  that  an 
arrangement  had  been  made  satisfactory  to  this  community. 
(See  decision,  April  6,  1911,  Stock  case,  and  quotation  in  Mr. 
Tyler's  argument,  p.  1573.)  The  Board  therefore  failed  to  give 
any  public  notice  to  the  consumers  affected  by  their  act,  of  their 
purpose  to  enter  a  decree  the  purpose  (and  possible  effect)  of 
which  was  to  nullify  the  80-cent  order  in  which  the  gas-consum- 
ers of  Haverhill  had  vested  rights.  It  is  most  extraordinary,  if 
it  be  law,  that  the  Gas  Commission  cannot  make  an  order  for  a 
reduction  of  the  price  of  gas  without  notice  and  a  public  hear- 
ing; and  may  legally  make  an  order,  or, — what  is  the  same 
thing, — assent  to  the  entry  of  a  decree  restoring  the  price  from 
80  cents  to  $1.00, — without  notice  to  the  consumers  who  have 
paid  $1.00  and  are  legally  entitled  to  80-cent  gas, — either  as  to 
their  past  or  as  to  their  future  rights.  I  venture  to  say  that  the 
act  of  this  Commission  in  assenting  to  that  decree  was  illegal. 

The  intended  effect  of  the  assent  by  this  Board  to  the  entry 
of  the  decree  in  the  Federal  Court  was  precisely  the  same  as  the 
effect  of  a  revising  order  made  under  Revised  Laws,  Ch.  121, 
sec.  35.  That  section*  provides  that  this  Board  may,  on  the  peti- 
tion of  a  company,  "after  notice,  give  a  public  hearing  to  the 
petitioner,  to  the  city  or  town  and  to  all  other  persons  interested, 
and  thereafter  may  pass  such  orders  relative  to  the  price  and 
quality  of  the  gas  or  electricity  thereafter  to  be  furnished  by 
such  company  as  it  determines  are  just  and  reasonable."  What 
this  Board  cannot  do  directly,  I  submit  it  cannot  do  indirectly. 
I  am  convinced  that  the  act  of  the  Board  in  voting  to  assent  to 
the  entry  of  that  decree  in  August,  1910,  was  ultra  vires  and 
void.  I  believe  that  this  Company  still  owes  the  gas  consumers 
of  Haverhill  the  aggregate  of  their  payments  in  excess  of  80 
cents.  What  practical  results  may  follow  from  these  proposi- 
tions of  law,  T  do  not  now  stop  to  discuss.  I  may,  however,  add, 
that  even  if  the  Company  has  succeeded  in  getting  releases  from 
the  consumers  to  whom  it  made  the  payments  out  of  the  $21,000 
fund,  I  have  no  doubt  that,  on  a  proper  showing  of  the  facts, 
any  court  would  hold  those  releases  vitiated  by  fraud. 

It  is  interesting  to  note  that  if  the  80-cent  order  had  been 
enforced,  the  company  would  still  have  made  an  income  ade- 
quate for  a  generous  return;  and  also  that  the  20%  excess  pay- 
ment amounts  to  about  double  the  figures  which  the  Oompnny's 


12 


representatives  used  in  the  discussions  at  the  time  of  the  hearing. 
See  Table,  p.  79-a,  from  which  it  appears  that  in  the  11  years, 
1900  to  1910,  the  Company's  sales  of  gas  amounted  to  1,770,113 
thousands.  The  total  income  on  manufacturing  account  was  in 
the  same  period,  $1,820,444.  As  substantially  all  these  sales 
were  at  $1.00  a  thousand,  20%  in  excess  of  the  rate  fixed,  it  is 
obvious  that  the  debt  due  the  consumers  was  upwards  of 
$350,000. 

Having  said  so  much,  I  will  also  say  that  I  have  not  the 
slightest  doubt  that  the  Commission  acted  in  good  faith  and 
without  the  slightest  suspicion  that  it  was  being  made  a  party 
to  what  was  in  effect  a  fraud  upon  this  community. 

Equally  extraordinary  was  the  ability  of  the  representatives  of 
the  Company  to  conceal  from  the  gas-consumers  of  this  commun- 
ity the  fact  that  it  had  even  been  suggested  to  this  Board  that 
such  final  decree  should  be  entered,  until  after  it  was  entered. 
Mr.  Essex  Abbott,  representing  a  large  number  of  consumers, 
had,  in  June,  1910,  appeared  before  the  City  Council  and  filed  a 
brief  setting  up  claims  of  illegality  as  to  the  scheme  of  reorgan- 
ization, substantially  the  same  as  those  afterwards  sustained  by 
this  Board.  The  decree  had  been  entered  several  months  before 
he  ever  heard  of  it.  It  was  not  until  I  became  of  counsel  for 
the  City,  in  the  winter  of  1911,  that  Mr.  Abbott,  or,  so  far  as  I 
know,  any  gas  consumer  of  Haverhill,  knew  that  the  new  own- 
ers had,  while  the  legality  of  the  general  scheme  promulgated  by 
them  was  still  in  question, — before  they  had  done  anything  to- 
carry  out  even  their  own  promissory  representations  as  to  im- 
proved service, — succeeded  in  putting  the  barrier  of  a  Federal 
Court  decree  between  this  Company  and  its  creditors  to  the 
amount  of  $300,000  to  $400,000.  Both  the  Board  and  a  major- 
ity of  the  Municipal  Council  were  tricked. 

The  gist  of  the  dealings  of  this  new  management  with  this 
gas-using  community  is  that  they  formed  an  illegal  scheme  for 
speculative  stock-watering;  and  by  practices  which,  to  use  the 
mildest  possible  term,  may  be  called  sharp  practices, — to  settle 
with  their  customer-creditors  for  about  5  cents  on  the  dollar;  to 
stop  municipal  ownership, — the  chief  fear  of  this  sort  of  exploit- 
ins:  manipulators;  and  then  to  proceed,  in  gross  breach  of  their 
own  promise?,  to  undertake  to  capitalize  at  about  three  times 
the  "full  and  fair  value,"  the  assets,  which  had  already  been, 
in  the  larger  part,  paid  for  by  these  gas  consumers  out  of  earn- 


13 


in.L!*  far  in  excess  <>!'  any  reasonable  dividends  and  accumulated 
as  a  trust  fund  for  the  benefit  of  both  company  and  customer. 

The  gas  consumers  of  Haverhill  are  not  "estopped,"  by  reason 
of  having  already  endured  so  many  wrongs,  from  now  claiming 
that  hereafter  this  public  utility  shall  deal  with  them  honestly 
and  fairly.  Indeed,  this  claim  of  estoppel  simply  indicates  the 
curious  obsession  which  seems  frequently  to  destroy  all  sense  of 
justice  and  fairness  in  the  minds  of  many  of  the  men  who  get 
the  control  and  mangement  of  public-service  utilities.  They 
come  to  regard  every  hard-working,  thrifty  and  prosperous  com- 
munity, like  Haverhill,  as  a  prey.  That  amiable  and  attractive 
gentleman,  Mr.  Eobb,  gave  unconscious  testimony  to  what  is 
really  the  guiding  principles  of  his  firm,  Stone  &  Webster.  Dis- 
claiming that  he  is  a  "gas  expert"  (and  therefore  in  the  class  of 
Messrs.  Jackson  and  Chase),  Mr.  Eobb  says,  in  effect,  (p.  1233 
et  seq.),  that  the  value  of  a  gas  property  for  buying  purposes 
may  be  reached  by  reckoning  $3.00  to  $4.00  per  thousand  on 
out-put,  which  makes  obviously  the  value  of  the  Haverhill  Gas 
Company,  in  decent  condition  with  an  out-put  of  250,000,000  a 
year,  from  $750,000  to  $1,000,000.  This  amounts  to  saying 
that  his  concern  really  buys  gas  companies,  not  on  the  engineer- 
ing basis — what  it  costs  to  build  a  plant  and  to  make  gas  in  it 
when  built — but  on  the  basis  of  the  "charge  that  the  traffic  will 
bear";  that  it  is  the  franchises,  the  right  to  tax,  that  is  the  main 
consideration. 

When  such  a  community  refuses  to  submit,  they  set  up  claims 
of  "unfair  dealing"  and  invoke  the  Fourteenth  Amendment  to 
assist  in  getting  what  does  not  belong  to  them. 

This  stock-watering  scheme  of  the  new  owners  is  infinitely 
worse,  in  every  respect,  than  the  old  Haverhill  Gas  Securities 
scheme;  and  it  has  been  promoted  by  methods  and  defended  by 
Pharisaical  cant  that,  by  contrast,  make  one  almost  respect  the 
Securities  scheme.  Haverhill  may  expect  nothing  good  from 
snrh  ownership  and  management  as  this. 

III. 


THE  REAL  ISSUE :     A  FAIE  PEICE  FOE  GAS. 


The  foregoing  is  preliminary  and  historically  interesting:  but 
the  gist  of  this  case  is,  What  is  a  fair  price  for  gas  now  to  be 


14 


charged  by  this  gas   company?     This  problem  naturally   and 
easily  sub-divides  into  two  parts : 

(1)  The  cost  of  gas  at  the  burner. 

(2)  The  capital  charge. 


(1)     The  cost  of  gas  at  the  burner: 

The  improved  form  of  this  Commission's  reports  makes  it 
much  easier  than  a  few  years  ago  to  determine  with  approximate 
accuracy  what  it  ought  to  cost  in  any  gas  company  to  put  gas  to 
the  burner.  In  this  case  we  cannot  be  guided  by  the  figures  of 
the  reported  cost  in  Haverhill  during  recent  years.  Apart  from 
the  fact  that  the  book-keeping  of  this  Company,  under  its  specul- 
ative management  of  recent  years,  is  entitled  to  little  or  no 
credence  as  to  many  important  items,  the  fact  that  the  Stone  & 
Webster  management  have  junked  the  old  manufacturing  plant 
and  put  in  a  new  water-gas  plant,  is  a  conclusive  admission  on 
their  part  that  the  old  costs  are  no  guide  in  determining  the  fair 
cost  for  the  future.  The  new  management  claims  to  have  the 
highest  kind  of  engineering  talent.  The  Stone  &  Webster  En- 
gineering Corporation  is  charging  large  sums  to  this  Gas  Com- 
pany which  they  potentially  own,  for  advising  it  and  for  consult- 
ing with  themselves  about  the  management,  for  themselves,  of 
this  property.  Even  if  we  discount  from  their  claims,  we  are 
fully  justified  in  assuming  that  the  rehabilitated  plant  is  to  be 
dealt  with  as  an  efficient,  fairly  economical  and  properly  man- 
aged plant.  If  it  fails  of  efficiency  or  proper  management,  it- 
should  make  no  difference  to  the  consumers;  the  owners  must 
pay  the  penalty  of  either  inefficiency  or  improper  mismanage- 
ment. 

Repeatedly,  before  and  during  the  hearing,  I  sought  to  obtain 
the  estimates  of  these  expert  engineers  as  to  what  it  would  cost 
to  put  gas  to  the  burner,  when  they  had  completed  their  rehabili- 
tation of  the  plant,  as  they  did  during  the  early  summer  of 
1911.  Their  neglect  and  refusal  to  give  that  estimate  argues 
against  the  good  faith  and  frankness  of  which  their  counsel 
makes  so  much  protestation. 

The  best  evidence  as  to  the  fair  cost  in  Haverhill  is  found  in 
the  expert  testimony  of  Mr.  Alton  D.  Adams  and  in  a  compari- 
son of  reported  costs  in  other  Massachusetts  companies.  Mr. 
Adams  estimates  that  gas  at  the  burner  will  cost  this  company 
a  little  less  than  55  cents.  This  computation  is  carefully  made 


15 

and,  indeed,  in  many  items,  such  as  Purifying  &  Water,  Cost 
of  Meter  Takers,  Public  Gas  Lamps,  Incidentals,  Insurance  & 
Taxes,  is  based  upon  the  actual  results  in  the  old  plant,  and  also 
reckoned  an  output  of  only  203,000,000  feet  when  the  actual 
output  for  the  first  year  which  would  be  affected  by  any  order 
that  you  will  make  will  be  about  250,000,000  feet.  Moreover, 
his  estimate  of  taxes  should  be  reduced.  This  item  of  5.39  cents 
per  thousand  is  based  upon  the  assumption  that  all  the  property 
upon  which  taxes  are  levied  is  used  for  gas  purposes,  whereas  in 
fact  they  have  some  $40,000  of  investment  in  real  estate  not 
used  at  all  for  gas  purposes.  He  figures  for  repairs  and  renew- 
als or  depreciation  11  cents  per  thousand  feet,  which  is,  for  a 
company  of  this  kind  and  in  such  a  condition  as  the  other  side 
claim  this  plant  to  be,  too  large,  even  if  we  do  not  assume  that 
there  is  any  depreciation  fund  applicable  to  current  depreciation 
charges, — a  topic  which  I  shall  touch  upon  later.  On  these  and 
other  grounds,  which  I  cannot  now  go  into  in  detail,  his  estimate 
of  55  cents  cost  at  the  burner  is  too  high.  This  also  appears  by 
comparing  the  actual,  reported,  results  in  some  of  the  other 
larger  companies  of  Massachusetts,  shown  in  the  following  table :' 

TABLE    BASED    ON    RETURNS    FOR    YEAR     ENDING    JUNE 

30,  1910. 


Nam* 

Sales  of 

Cost  at 

Sales  per  mile  of 

Cities 

Gas 

Burner 

main  —  thousands 

Boston     

....5,023,906,546 

.48486 

5568 

Cambridge    .  . 

.  .  .  .    670,000,000 

.59325 

4375 

Charlestown 

238,229,775 

.66894 

4079 

East  Boston 

242,000,000 

.67774 

3590 

Fall      River.. 

.  .  .  .     498,000,000 

.54502 

4230 

Lawrence    .  .  . 

418,000,000 

.65244 

2717 

Haverhill    .  .  . 

203,000,000 

.74829 

3247 

Lowell    

574,000,000 

.57959 

3430 

Lynn    

606,000,000 

.47377 

4286 

Pittsfield   .... 

112,000,000 

.75948 

2075 

Maiden    .  . 

420  000  000 

.56008 

2478 

New  Bedford. 

.  ...    360,400,000 

.62833 

3698 

Springfield    .  . 

563,000,000 

.58058 

3187 

Taimton    .  .  . 

107  000  000 

.71301 

1721 

Worcester 

638.000.000 

.53240 

3940 

It  is  matter  of  common  knowledge  that  most,  perhaps  all,  of 
the  gas  companies  of  Massachusetts,   unless  it  be   the  Boston 


16 


Company,  are  still  charging  up  more  to  operating  expenses  than 
is  necessary  to  cover  repairs  and  depreciation;  that  the  figures 
in  this  table  are,  therefore,  higher,  and  not  lower,  than  the 
actual  cost.  But  without  any  such  allowance,  it  is  obvious  that 
the  cost  of  gas  at  the  burner  in  Haverhill  is  fairly  comparable 
with  the  cost  in  Lowell,  Lynn,  Maiden,  Springfield  and  Worces- 
ter. Is  is  true  that  the  output  in  all  of  these  cities  is  somewhat 
larger  than  in  Haverhill ;  but  when  a  company  is  as  large  as  the 
Haverhill  Company,  selling  about  250,000,000  feet  a  year,  its 
manufacturing  efficiency  approximates  to  the  maximum;  mere 
increase  in  size  grounds  few  additional  economies.  Lynn  and 
Fall  River  have  also  some  advantages  in  freight  charges  on  coal 
and  other  purchases.  But  Lynn's  (about)  47  cents  is  lower  than 
HaverliilPs  estimated  55  cents,  after  due  allowance  for  water 
transportation  and  for  larger  output  in  Lynn.  Fall  Eiver  is  the 
only  other  purely  water-gas  plant  in  Massachusetts. 

The  cost  of  distribution  should  be  low  in  Haverhill;  its  sales 
per  mile  of  main  are  high, — in  thousands,  3247,  compared  with 
Lowell's  3430,  Springfield's  3187,  Worcester's  3940,  Brockton's 
'1658,  East  Boston's  3590,  and  Taunton's  1721. 

Remember  also  that  the  candle-power  in  Haverhill  has  been 
much  reduced.  This  Commission  cannot,  as  I  .understand  it, 
compel  the  furnishing  of  gas  above  16  candle  power.  If  a  com- 
pany chooses  to  furnish  a  low  grade  of  gas,  approximating  the 
legal  minimum,  as  this  Company  has  apparently  chosen,  the 
price  must  be  made  accordingly.  You  are  not  now  dealing  with 
a  candle  power  of  24.3  as  you  were  12  years  ago;  you  are  dealing 
with  a  management  whose  motto  seems  to  be,  "Less  light  and 
more  money/' 

We  ask  the  Commission  to  find  that  the  cost  of  gas  at  the 
burner,  in  this  company  properly  managed  and  with  no  exorbi- 
tant salaries  paid  and  charged  up,  or  other  such  speculative 
schemes  worked  into  the  management  as  this  Commission  re- 
cently condemned  in  the  North  Adams  case,  will  not  exceed  55 
cents. 

The  relations  of  this  company  to  the  Stone  &  Webster  Engi- 
neering Corporation  demand  the  most  critical  scrutiny.  The 
engineering  and  other  expenses  are  exorbitant;  they  remind  one 
unplrnsantly  of  some  of  the  salaries  paid  by  the  old  Boston  Com- 
y  under  the  Addicks  regime. 


17 


(2)     What  is  the  basis  of  the  capital  charge? 

The  capital  stock  of  the  Haverhill  Gas  Light  Company  is  but 
$75,000.  For  the  ensuing  year  this  would  amount  to  about  35 
cents  per  thousand  sold, — the  lowest  capital  per  thousand  of  any 
company  in  the  Commonwealth.  Obviously  a  10%  (which  is 
generous)  dividend  upon  the  capital  stock  amounts  to  S1/^  cents 
per  thousand  feet  as  a  capital  charge.  Haverhill  is  therefore  en- 
titled to  a  price  considerably  lower  than  any  other  city  of  the 
Commonwealth,  unless  the  capital  charge  is  to  be  reckoned  upon 
some  other  basis  than  the  capital  stock  of  the  company.  Sixty 
cents  per  thousand  feet  is  a  high  price  for  gas  in  Haverhill,  reck- 
oning large  dividends  upon  the  only  contribution  that  stock- 
holders have  ever  made  to  the  establishment  and  maintenance  of 
this  public  utility,  and  assuming  for  the  moment  that  past  ex- 
tortions are  in  no  way  to  be  punished. 

The  claim  on  the  other  side  is  that,  not  the  capital,  but  the 
alleged  value  of  the  property,  without  regard  to  whence  that  prop- 
erty came,  is  to  be  the  basis  of  the  capital  charge.  They  make 
this  claim  on  two  grounds :  The  first  is  what  I  call  the  "Four- 
teenth Amendment  Theory  of  Capitalization/'  with  which  I 
shall  deal  later.  The  other  is  the  "Theory  of  Foregone  Divi- 
dends." 

(a)     "Foregone  Dividends/' 

More  concretely,  they  claim  that  the  old  stockholders  of  the 
Haverhill  Gas  Light  Company, — citizens  of  Haverhill  long  since 
dead  and  gone,  did  not  get  the  dividends  that  they  were  entitled 
to  out  of  this  company;  that  therefore  the  present  owners  are 
entitled  to  compute  and  compound  those  foregone  dividends,  and 
take  to  themselves  the  benefit  of  that  which  was  foregone  by 
their  deceased  corporate  ancestors.  In  substance,  they  allege 
that  the  thrifty  and  hard-headed  Yankee  shoemakers  who  in  the 
early  decades  of  the  life  of  this  Company  owned  it,  were  not 
sufficiently  intelligent  and  selfish  to  take  their  just  deserts,  but 
sacrificed  themselves  to  the  Gas  Company  to  such  an  extent  that 
the  present  owners  are  entitled  now  to  profit  out  of  their  sacri- 
fices. They  present  an  elaborate  chart  prepared  by  Mr.  Harvey 
S.  Chase,  hung  upon  the  wall,  from  which  it  appears  that  that 
ingenious  gentleman  has  figured  out  that  the  capital  stock  plus 
profits  which  ought  to  have  been  taken  out,  and  were  not,  was. 


18 


on  July  1,  1910,  not  $75,000,  but  $578,067.  By  the  same  in- 
genious method  Mr.  Chase  has  figured  that  on  June  30,  1887, 
when  the  books  of  this  Company,  directed  only  by  the  inferior 
intelligence  of  hard-headed  citizens  of  Haverhill,  showed  $91,- 
878.07,  it  really  ought  to  have  had  assets  on  its  books  of  $255,- 
857.  It  is  true  that  in  order  to  reach  these  interesting  and 
amazing  results.  Mr.  Chase  has  guessed  two  basic  things :  First, 
—he  guesses  what  part  of  the  charged  operating  expenses,  from 
1859  down,  were  really  not  operating  expenses  but  construction 
charges,  and  changes  the  book-keeping  according  to  his  guess. 
Second, — he  guesses  that  a  proper  depreciation  charge  from  1859 
down  was  6.6  cents  per  thousand  feet  of  gas. 

In  passing.  I  note  that  this  figure  of  6.6  cents  per  thousand  as 
applied  to  a  small  gas  company  in  the  crude  days  of  the  '60s  and 
'70s  is  20%  less  than  the  8%  cents  per  thousand  which  the 
present  management  would  charge  present  consumers  as  neces- 
sary to  keep  up  this  large  rehabilitated  company  now  selling 
about  250,000,000  feet  a  year,  indeed,  Mr.  Chase,  on  cross- 
examination,  admitted  that  6.6  per  thousand  feet  was  altogether 
too  small  in  the  earlier  years  of  the  corporation,  and,  again  con- 
tradicting his  employers,  asserted  that  it  was  too  large  in  the 
later  years.  As  he  takes  this  depreciation  charge  each  year  for 
the  purpose  of  carrying  forward  and  compounding  the  balance 
remaining  as  though  it  were  an  addition  to  capital,  it  is  manifest 
that  the  smaller  he  makes  it  in  the  earlier  years,  the  larger  the 
hypothetical  capital  that  he  thus  achieves.  But  Mr.  Chase  is 
not  disturbed  by  the  fact  that  the  depreciation  charge  is  wrong 
at  both  ends ;  but,  with  the  imperturbable  logic  of  the  judge  who 
said,  on  returning  from  the  circuit,  "There  were  some  verdicts 
for  the  plaintiff  that  ought  to  have  been  for  the  defendant,  and 
some  for  the  defendant  that  ought  to  have  been  for  the  plaintiff, 
but  on  the  whole  justice  was  done," — Mr.  Chase  insists  that  his 
depreciation  charge  is  all  right  throughout  the  fifty  odd  years 
of  the  Company's  life. 

But  I  will  not  spend  time  in  dealing  with  the  logic  of  a  man 
who  makes  two  obverse  wrongs  equal  one  right.  Mr.  Eobb's 
ingenious  computations  went  upon  the  same  basis. 

The  theories  are  ridiculous;  the  results  figured  have  no  rela- 
tion to  actual  facts.  The  plain  truth  is  that  this  corporation 
had,  when  it  first  began  to  make  returns  to  this  Commission, 
assets  carried  of  a  book  value  of  $91,878.07  and  doubtless  worth 


19 


somewhat  more  than  that  sum.    The  following  table  shows  some 
interesting  facts  relative  to  the  life  of  this  corporation : 

Year  Capital 
stock 

1887 75,000 

188S 75,000 

1889 75,000 

1890 75,000 

1891 75,000 

1892 75,000 

1893 75,000 

1894 75,000 

1895 75,000 

1896 75,000 

1897 75,000 

1898 75,000 

1899 75,000 

1900 75,000 

1901 75,000 

1902 75,000 

1903 75,000 

1904 75,000 

1905 75,000 

1906 75,000 

1907 75,000 

1908 75,000 

1909 75,000 

1910 75,000 

*Note:     In  1910,  pending  the  success  of  the  new  stock  watering 
scheme,  the  new  management  practically  stopped  dividends. 

But  it  should  be  said  with  relation  to  this  table,  that  without 
doubt  during  the  earlier  life  of  this  corporation  and  until  some- 
time in  the  '90s  the  policy  of  the  corporation  was  to  charge  off 
more  to  operating  expenses  than  the  real  cost,  and  therefore  to 
carry  their  assets  at  less  than  their  actual  value ;  that  the  policy 
of  the  corporation  since  1898  or  1899,  when  it  went  into  the 
hands  of  speculators,  has  been  to  carry  their  assets  as  worth  more 
than  the  actual  value. 

The  question  of  the  present  relation  of  this  corporation's  capi- 
tal stock  to  its  assets  is  further  confused  by  the  recent  large  ex- 
penditures in  building  a  new  and  enlarged  manufacturing  plant 
and  extending  the  mains,  and  the  utter  failure  of  the  Company 
to  show  what  book-keeping  entries  they  purpose  making  as  to 
these  expenditures.  They  say  that  they  have  expended  some- 


Total  Book 

Assessed 

Dividends  paid 

Assets 

Value 

Dollars 

91,878.07 

.  122,500.00 

7,500.00 

150,927.33 

122,500.00 

7,500.00 

167,752.24 

122,500.00 

7,500.00 

186,272.46 

151,700.00 

7,500.00 

215,896.98 

164,000.00 

7,500.00 

232,562.00 

165,150.00 

7,500.00 

248,598.81 

165,150.00 

7,500.00 

251,309.03 

165,150.00 

7,500.00 

273,605.27 

165,150.00 

7,500.00 

286,473.25 

168,550.00 

7,500.00 

297,377.73 

169,800.00 

9,750.00 

389,579.08 

173,625.00 

37,500.00 

401,101.26 

168,050.00 

22,500.00 

395,500.00 

315,100.00 

33,008.44 

411,862.52 

320,775.00 

27,000.00 

394;254.92 

320,450.00 

25,000.00 

392,956.45 

320,050.00 

25,000.00 

420,529.70 

320,050.00 

25,000.00 

434,069.20 

320,050.00 

25,890.42 

582,174.60 

355,200.00 

25,000.00 

605,237.10 

374,600.00 

25,000.00 

627,415.90 

424,600.00 

25,000.00 

663,756.67 

438,200.00 

12,500.00 

764,871.99 

439,525.00 

975.00* 

thing  just  under  $250,000,  or  over  $300,000, — one  cannot  make 
out  from  their  evidence  which,  nor  did  Mr.  Tyler  appear  to  know 
when  I  asked  him  during  his  argument  yesterday.  How  much 
of  that  they  charge  to  current  expenditure,  how  much  they 
charge  against  the  "depreciation  reserve"  item  which  has  stood 
on  the  books  for  some  time,  how  much  if  any  of  it  is  carried  as 
a  debt  which,  on  any  theory  might  form  the  basis  of  an  applica- 
tion for  a  bond  issue  or  for  new  stock, — we  are  left  in  doubt. 
But,  in  order  to  figure,  for  the  purpose  of  the  present  point, 
some  sum  as  representing  the  approximate  surplus  of  the  cor- 
poration, I  take  the  figures  of  the  valuation  given  by  our  expert, 
Mr.  Alton  D.  Adams,  as  showing  the  real  value  of  this  property 
on  June  30,  1911.  Mr.  Adams  figures  that  the  value  of  the  prop- 
erty used  and  necessary  to  be  used  for  gas  purposes  on  that  date, 
which  includes  the  recent  reconstruction  made  by  Messrs.  Stone 
&  Webster,  is  $350,000.  In  addition  to  that,  the  corporation 
owns  land  on  Essex  Street  and  on  Merrimac  Street,  said  to  be 
assessed  for  about  $40,000,  and  has  some  quick  a'ssets  not  neces- 
sary to  be  used  for  gas  purposes,  aggregating  in  all  $82,000, 
which,  in  figuring  the  surplus,  must  be  added  to  the  $350,000, — 
making  $432,000.  round  figures,  total  assets.  From  this,  in 
order  to  reach  the  surplus,  I  deduct  the  $75,000  capital  stock, 
getting  $357,000;  and  if  there  are  debts  properly  incurred  as  a 
result  of  the  reconstruction  which  might  be  capitalized,  those 
debts  also  should  be  deducted;  in  any  event,  such  debts  must  be 
small,  and  the  surplus  of  this  corporation  must  be  at  least  $250,- 
000  to  $300,000.  Is  this  surplus  fund  or  such  part  of  it  as  is 
reasonably  necessary  to  be  used  in  making  gas,  made  up  of  "fore- 
gone dividends  ?"  We  say  no. 

Mr.  Chase's  chart  shows  that  for  the  first  14  years  of  the  busi- 
ness of  this  corporation  the  stockholders  received  an  average  of 
about  51/0%;  for  the  next  five  years  a  little  over  8%;  then  the 
Directors  put  the  stock  upon  a  regular  10%  basis,  which  was 
never  varied  from  until  the  speculators  got  the  property,  except 
in  the  year  18S2  when  it  was  5%,  and  the  year  1897  when  it  was 
12%.  Beginning  with  1898,  as  is  obvious  from  the  above  table, 
the  stockholders  have  been  taking  out  of  this  property  about 
34%  a  year.  If,  therefore,  we  should  cut  loose  from  business 
practices  and  talk  about  "moral  obligations,"  it  is  manifest — 
not  that  the  consumers  owe  the  stockholders  anything  for  "fore- 
gone dividends,"  but  rather  that  the  recent  stockholders  owe  the 


present  and  future  consumers  for  the  extortions  of  these  13 
years  of  34%  dividends.  Down  to  1896  the  stockholders  had  re- 
ceived an  excellent  return  on  their  money,  including  adequate 
pay  for  all  the  risk  they  ever  ran.  Only  $50,000  was  ever  risked 
anyway ;  for  the  increase  of  the  capital  about  1873  from  $50,000 
to  $75,000  was  nothing  but  a  new  investment;  that  new  money 
could  doubtless  have  been  obtained  on  a  5%  or  6%  basis. 

Moreover,  these  stockholders  took  dividends  that  contented 
them — doubtless  all  that  their  consciences  permitted  them  to 
charge  their  fellow  citizens  for  the  economic  service  they  were 
rendering. 

No  part  of  the  capital  of  this  Gas  Company  consisted  of  "fore- 
gone dividends"  for  the  simple  reason  that  none  have  been  "fore- 
gone." "You  cannot  turn  the  mill  with  the  water  that  has  past." 

(b)     The  Fourteenth  Amendment  Capitalization  Theory. 

Passing  the  Foregone  Dividend  claim,  we  come  to  the  broad, 
far-reaching  proposition  that  the  Fourteenth  Amendment  to  the 
Constitution  of  the  United  States  makes  utterly  immaterial  all 
questions  of  the  capital  stock  of  this  corporation,  all  contribu- 
tions or  investments, — initial  or  subsequent,  by  stockholders; 
that  the  only  constitutional  basis  for  rate-making  is  the  repro- 
duction cost  of  the  property  used  in  the  public  utility.  The 
claim  is  that  the  whole  public-corporation  policy  of  this  Common- 
wealth is  immaterial  so  far  as  the  basis  of  rate-making  is  con- 
cerned ;  that  the  Fourteenth  Amendment  to  the  Constitution  of 
the  United  States,  as  construed  by  the  Supreme  Court  of  the 
United  States,  is  the  supreme  law  of  the  land,  and  over-rides 
Massachusetts  statutes,  Massachusetts  Supreme  Court  decisions, 
and,  of  course,  the  decisions  of  this  Commission. 

It  is  time  that  the  Commission  dealt  in  no  unmistakable 
terms  with  the  attempt  to  capitalize  the  surpluses  of  lighting 
companies  in  this  Commonwealth  under  the  threat  of  this  Four- 
teenth Amendment  theory  of  capitalization.  Only  in  degree  is 
it  less  important  in  other  cities  and  with  other  companies  than 
in  Haverhill. 

I  venture  the  confident  assertion  that  the  whole  proposition  is 
groundless,  and  that  a  fair  analysis  of  the  carefully  guarded 
opinions  of  the  Supreme  Court  of  the  United  States  will  con- 
vince any  sound-thinking  lawyer  that  it  is  groundless.  Not 
here  undertaking  to  review  many  of  those  decisions  in  detail,  I 


direct  this  Commission's  attention  to  the  New  York  Gas  case, 
Wilcox  vs.  Consolidated  Gas  Company,  212  II.  S.  19, — and  the 
way  in  which  the  Supreme  Court  of  the  United  States  there 
dealt  with  the  claim  that  the  value  of  the  franchises  of  the  Gas 
Company  were  property  on  which  a  return  must  be  allowed  in 
fixing  a  price  for  gas.  The  court  below  held  that  the  franchises 
were  property  on  which  a  return  should  be  reckoned,  and  allowed 
$12,000,000  as  their  value.  About  $7,000,000  of  this  sum  was 
for  franchises  which  the  State  of  New  York  had  permitted  to  be 
capitalized  at  a  previous  consolidation  in  1884  and  on  which 
securities  had  been  issued  to  bona  fide  investors  without  notice 
of  any  claim  that  their  securities  were  not  well  grounded  upon 
substantial  values.  But  the  Supreme  Court,  in  dealing  with  the 
claim  that  a  return  should  be  reckoned  upon  the  full  value  of 
the  franchises,  while  holding  that  franchises  are  property,  re- 
jected utterly  that  they  are  property  on  which,  under  the  Consti- 
tution, a  return  is  necessarily  to  be  allowed.  On  the  contrary,  it 
held  that,  as  the  value  of  the  franchises  depended  entirely  upon 
the  exercise  of  the  legislative  power  to  fix  rates,  in  a  rate-regula- 
tion case  the  franchises  were  not  to  be  reckoned  at  all;  but  (and 
this  is  the  important  point  for  our  present  purpose)  finding 
that  the  State  had  agreed  in  1884,  for  the  purpose  of  allowing 
stocks  and  bonds  to  be  issued,  upon  a  value  of  something  over 
$7,000,000  for  the  franchises  as  they  then  were,  they  held  that 
the  State's  action  in  that  regard  was  binding  upon  all  the  par- 
ties. The  result  was  that  the  franchises  were  excluded  from  the 
basis  of  computation  except  so  far  as  the  State's  policy,  acted 
upon  by  the  parties,  had  made  such  franchises  property ;  on  that 
point  the  Supreme  Court  held  all  parties  bound  by  the  agree- 
ment which  had  been  in  good  faith  entered  upon  and  executed  by 
all  parties. 

No  clearer  declaration  could  be  made  by  this  great  Court  that 
in  dealing  with  its  anti-confiscatory  power  under  the  Fourteenth 
Amendment,  it  deals  with  corporate  rights  as  they  are  shown  to 
exist  under  the  state  law  which  has  created  the  corporations  and 
undertaken  to  regulate  them.  The  Supreme  Court  has  held  in 
unmistakable  language  that  regulation  cannot  be  perverted  into 
extortion. 

Smyth  vs.  Ames,  169  U.  S.  is,  on  fair  analysis,  an  authority 
for  our  contention,  though  frequently  cited  as  laying  down  in 
dogmatic  language  the  reproduction  cost  theory.  The  Court 


23 

says  (inter  alia)  "What  the  company  is  entitled  to  ask  is  a  fair 
return  upon  the  value  of  that  which  it  employs  for  the  public 
convenience."  But  the  Company  "employs  for  the  public/'  etc. 
only  that  which  it  furnishes  for  the  public;  and  the  whole  im- 
port of  this  case  is  against  any  such  fraud  as  permitting  trust 
funds  to  be  wrested  from  the  uses  for  which  they  were  accumu- 
lated. Smyth  vs.  Ames  is  really  a  decision  against  rates  based 
on  artificial  values  in  stocks  and  bonds  not  representing  real 
property. 

No  decision  has  been  or  can  be  cited  in  which  the  Massachu- 
setts Supreme  Judicial  Court  or  the  Supreme  Court  of  the 
United  States  has  held  that  rates  must  be  based  on  property 
furnished  by  the  customers  and  not  by  the  stockholders. 

Compare  also  the  Knoxville  Water  case,  212  U.  S.  1;  the 
Cumberland  Telephone  case,  212  U.  S.  414,  and  the  cases 
therein  cited. 

In  the  light  of  these  decisions,  it  would  be  useless  to  spend 
time  in  citing  and  differentiating  the  dicta  from  the  numerous 
inferior  courts,  many  of  them  dealing  with  cases  where  the 
property  was  taken,  many  of  them  with  the  construction  of  local 
statutes, — not  one  of  them  applicable  to  a  Massachusetts  cor- 
poration,— which  is  controlled  only  by  Massachusetts  law,  unless 
that  law  be  inconsistent  with  the  fundamental  law  of  the  nation. 

The  Supreme  Court  of  the  United  States  only  needs  to  have 
pointed  out  to  it  the  historical  incidents  of  the  agreement  be- 
tween public  and  investor,  and  the  public  policy  of  this  Com- 
monwealth under  which  our  gas  companies  have  been  created 
and  maintained, — in  order  to  reject  utterly  the  theory  that  in 
Massachusetts  the  reproduction  cost  of  the  property,  and  not  the 
investment  of  the  stockholders,  is  to  be  the  basis  of  rate-making. 

For,  note  briefly  some  of  the  salient  facts  concerning  our 
Massachusetts  corporations.  At  the  outset,  our  corporations 
must  be  distinguished  from  the  corporations  of  almost  every 
other  state,  for  that  all  of  them  (down  to  1903)  were  formed, 
on  what  is  in  effect  an  anti-stock-watering  law,  that  is,  the 
capital  stock  had  to  be  paid  in  in  cash  or  in  property  taken  as 
the'  fair  equivalent  of  cash.  The  stocks  and  bonds  of  Massa- 
chusetts corporations  have,  therefore,  always  in  legal  theory 
represented  actual  values.  The  capital  stock  of  Massachusetts 
corporations  has  been  held  to  be  impaired  whenever  property 
of  the  corporation  was  in  value  less  than  the  amount  of  the  stock 


and  debts.  Compare,,  for  instance,  the  report  on  the  West  End 
case  by  the  Eailroad  Commissioners  1898  Keport,  p.  140.  See 
also  the  line  of  cases  cited  in  the  brief  of  opposing  counsel  in 
the  Stock  case,  pp.  17  et  seq.,  among  which  are  Hemenway  vs. 
Hemenway,  181  Mass.,  406.  The  cases  cited  there  show  that  any 
amount  of  surplus  above  the  capital  and  debts  of  a  corporation 
has  never  been  deemed  to  be  capital  stock,  but  simply  an  accu- 
mulated profit,  which,  being  distributed,  went  to  the  income- 
taker  and  not  to  the  remainder-man.  In  other  words,  our 
Massachusetts  corporation  law  has  required  that  the  stock- 
holders should  pay  in,  in  cash  or  its  equivalent  the  par  value  of 
the  capital  issued,  and  has  always  kept  that  capital  and  its  repre- 
sentative carefully  distinguished  from  any  accumulations  from 
any  other  source. 

Quite  other  has  been  the  theory  in  other  states,  where  stocks 
and  bonds  have  been  issued  practically  without  reference  to  the 
capital  paid  in.  It  is  largely  because  of  this  lack  of  relation  be- 
tween capital  paid  in  and  capital  stock,  that  the  Courts  have 
been  compelled  to  go  as  far  as  they  have  toward  the  reproduction 
value  theory. 

Coming  now  to  the  claim  that  at  some  time  or  other  a  right 
accrued  to  the  stockholders  of  Massachusetts  gas  companies  to 
have  something  other  than  their  investment  considered  the 
capital  upon  which  rates  are  to  be  made,  it  is  obvious  that  there 
may  be  a  difference  between  the  theory  prior  to  1885,  when 
these  corporations  became  legalized  monopolies  under  the  con- 
trol of  this  regulating  Commission,  and  the  theory  after  1885. 

First, — as  to  the  legal  status  of  gas  companies  before  1885, — 
before  they  were  made  legalized  monopolies:  Before  1885, 
Massachusetts  gas  companies  were  nothing  but  manufacturing 
corporations,  having  revocable  rights  in  the  streets  of  our  cities 
and  towns,  having  no  public  duties  and  charged  with  no  public 
trust.  Compare  Commonwealth  vs.  Lowell  Gas  Light  Company, 
12  Allen,  75, — a  decision  made  in  1866.  Their  property  was  of 
the  most  precarious  nature ;  at  any  time  any  city  or  town  might 
revoke  their  rights  in  the  streets,  which  would  make  their  plant 
substantially  valueless.  Whenever  their  profits  loomed  large, 
there  was  danger  that  some  competitor  might  come  in;  and,  as 
they  could"  not  extend  their  field  beyond  the  city  or  town, 
obviously  competition  would  have  the  most  destructive  effect. 
The  result  was  that  conservative  directors  of  prosperous  gas 


25 

companies  were,  before  1885,  building  up  all  the  surplus  they 
could,  having  in  mind  the  possible  destruction  of  their  property, 
not  merely  by  electric  light  competition,  explosion,  obsolescence, 
and  other  kinds  of  depreciation,  but,  worst  of  all,  the  possibility 
of  competition.  To  realize  the  situation,  re-create  in  your  minds 
the  state  of  terror  into  which  Mr.  Addicks  threw  the  holders  of 
gas  stocks  in  Metropolitan  Boston  when  he  came  to  Boston  in 
1884  and  threatened  competition  by  the  Bay  State  Gas  Com- 
pany. It  was  not  very  unreasonable  for  Directors  before  that 
time  to  seek  to  put,  as  the  old  Boston  Gas  Company  sought  to 
put,  a  large  sum  of  money  into  real  estate  and  elsewhere,  which, 
in  case  of  destruction,  by  competition,  of  their  property  used 
for  purely  gas  purposes,  might  enable  them  to  liquidate  to  their 
stockholders  substantially  at  par.  In  fact,  although  most  of  the 
companies  were  charging  off  to  operating  expenses  large  sums 
which  for  continuing  gas  making  purposes  might  have  been 
carried  to  surplus  account,  it  is  doubtful  if  the  fair  market 
value  of  the  gas  properties  in  this  Commonwealth,  under  the 
existing  legal  conditions  before  1885,  was  worth  any  more  than 
the  investments  shown  by  the  stocks  and  debts. 

It  is  pertinent  also  to  have  in  mind  that  the  act  of  1885, 
making  these  concerns  legal  monopolies,  was  not  the  direct  re- 
sult of  a  public  demand  for  regulation  by  Commission,  but  was 
legislation  enacted  at  the  behest  of  the  Gas  Companies  for  the 
purpose  of  securing  their  property  against  the  destructive  re- 
sults of  competition.  The  corporation  managers  came  to  the 
Legislature  and  said,  in  effect,  that  their  private  interest  in 
having  their  property  protected  against  competition  was  co- 
incident with  the  public  interest  in  not  having  the  streets  dug 
up  by  competing  companies ;  they  therefore  sought  to  have  these 
corporations  made,  in  their  respective  communities,  legalized 
monopolies,  agreeing  on  their  part  that  if  this  monopoly  power 
should  be  given  to  them,  they  would  become  public-service  cor- 
porations, serve  all  without  discrimination  and  charge  fair  rates 
only.  The  Legislature  assented  to  this  proposition. 

But  it  cannot  be  too  emphatically  stated  that  the  law  which 
ma,de  these  concerns  legalized  monopolies  was  a  law  enacted 
primarily  to  protect  private  property,  and  that  the  public  regu- 
lation was  the  consideration  of  the  grant  to  the  private  interest. 

Did,  or  did  not,  these  corporate  managers  at  the  time  when 
they  sought  and  obtained  this  grant  of  legalized  monopoly  and 


26 

agreed  that  thereafter  only  just  and  fair  rates  should  be  charged, 
agree  by  necessary  implication  that  the  basis  of  those  fair  rates 
should  be  the  capitalization  of  Massachusetts  corporations,  or 
that  some  other  and  different  basis  should  be  adopted  ?  Put  in 
another  way:  Was  the  investment  theory  of  capital,  or  the  re- 
productive cost  theory,  agreed  upon  between  the  Commonwealth 
and  the  investors  as  the  basis  for  rate-making  when  the  legal 
status  of  these  corporations  was  radically  changed  in  1885. 

Bear  in  mind  that  the  value  of  the  property  of  these  gas 
companies  was,  by  the  granting  of  the  legalized  monopoly,  much 
increased ;  that  the  passage  of  the  Act  laid  the  financial  founda- 
tion for  putting  back  on  the  books  assets  which  had  been  pre- 
viously charged  off, — the  thing  which  Mr.  Addicks  did  in 
Boston. 

If  there  was  the  slightest  legal  or  moral  foundation  for  the 
claim  that  the  new  rate-making  power  was  to  be  exercised  on  any 
other  basis  than  that  of  the  well-ascertained  basis  of  the  capital 
stock  of  Massachusetts  corporations,  good  faith  required  that 
the  corporation  managers  should  then  and  there  make  that 
claim.  There  was  not  a  corporation  manager  in  the  Common- 
wealth of  Massachusetts  who  would  have  dreamed  of  having  the 
supreme  arrogance  to  suggest  that  the  new  rate  regulation 
should  be  based  upon  anything  more  than  the  capital  stock, — 
the  investments  paid  into  these  gas  companies.  If  you  could 
conceive  of  the  making  of  such  suggestion,  no  legislator  would 
have  received  it  with  anything  but  scorn  and  laughter. 

Put  in  a  word:  In  1885  the  gas  companies  of  this  Common- 
wealth passed  out  of  the  competitive  field  into  the  rate-regulat- 
ing field,  with  an  agreement  between  the  corporations  and  the 
Commonwealth  that  rates  should  be  based  upon  the  established 
Massachusetts  theory  of  capital  stock  paid  in  in  cash  or  in 
property  taken  at  the  equivalent  of  cash;  that  no  accumulations 
or  surplus  funds,  from  whatever  source  derived,  were,  for  rate- 
making  purposes,  to  be  deemed  to  be  capital;  and,  conversely, 
that  if  any  of  the  gas  companies  to  which  the  new  theory  was 
applicable  had  impaired  their  capital,  that  the  impairment  of 
that  capital  must  be  considered  in  the  making  of  any  rate,  just 
as  it  was  considered  by  the  Eaiiroad  Commission  in  the  West 
End  case  in  1897.  Nor  at  that  time  would  the  directors  of  any 
gas  company  have  assented  to  the  proposition,  if  it  had  been 
asserted  by  the  Commonwealth,  that  the  new  rate-making  was 


27 

to  be  based  upon  the  reproduction  value  of  the  property  of  any 
gas  company,,  and  not  the  original  investment,  if  by  reason  of 
misfortune  or  excusable  mismanagement  that  property  had  be- 
come of  lessened  value.  Indeed,  it  is  highly  probable  that,  because 
of  the  drop  in  the  price  of  pipe  and  other  parts  of  the  plants, 
many  of  the  gas  companies  in  the  Commonwealth  of  Massachu- 
setts in  1885  had  property  of  substantially  less  value  than  the  or- 
iginal investment.  The  owners  of  the  stocks  of  those  gas  compan- 
ies would  have  thought  themselves  hardly  treated  if  the  new  regu- 
lating theory  had  taken  as  its  basis,  not  their  investment,  but 
the  then  value  of  the  property.  They  would  have  said,  and 
justly  said,  that  when<  they  put  into  the  public  service  their 
money  in  good  faith,  unless  they  ought  to  be  penalized  for  mis- 
management or  grossly  bad  judgment,  they  were  entitled  to  get 
that  money  back  with  a  fair  return  thereon;  and  I  venture  to 
say  that  no  sound-thinking  man  in  this  Commonwealth  would 
have  questioned  the  justice  of  that  claim.  No  one  ever  did 
question  the  justice  of  this  claim  until  speculators  saw  that. these 
corporations  had  large  surpluses  accumulated,  and  then  set  up  a 
new  theory,  as  unsound  and  as  unjust  to  investors  as  it  is  to 
consumers,  as  the  basis  of  their  claim  for  capitalizing  surpluses. 
Second. — Does  the  policy  adopted  in  1885  and  enforced  by 
this  Board  ground  a  claim  that  something  other  than  the  invest- 
ment in  the  corporation  should  be  the  basis  of  the  rate-making  ? 
Quite  the  contrary.  As  soon  as  this  Board  began  to  exercise  its 
price-regulating  power,  the  corporations  urged  upon  the  Board 
that  they  be  permitted  to  charge  prices  for  gas  more  than  ade- 
quate to  cover  the  reckoned  operating  expenses  and  to  provide 
for  reasonable  current  dividends,  because  of  what  they  claimed 
were  the  risks  of  the  business, — some  of  the  greatest  of  those 
risks  being  (a)  the  destruction  of  their  property  by  the  competi- 
tion of  electric  light,  (b)  the  risk  of  explosion,  (c)  the  risk  of 
obsolescence.  They  asked  for  an  insurance  against  these  risks, 
for  a  depreciation  fund  to  cover  these  and  all  other  risks,  many 
of  which  have  proved  to  be  largely  imaginary.  The  argument 
that  a  price  somewhat  larger  than  was  necessary  to  cover  the  op- 
erating expense  and  reasonable  dividends,  the'  surplus  to  go  into  a 
fund  possibly  to  be  used  for  depreciation  and  to  cover  risks,  and, 
if  not  so  used,  to  constitute  a  trust  fund  for  the  benefit  of  the 
consumers  and  thus  to  keep  the  capitalization  low, — was  a  very 
taking  argument,  and  it  prevailed  with  this  Board. 


28 

Again, — note  that  tins  public  policy  also  was  adopted  not 
avowedly  in  the  interest  of  the  consumers,  but  at  the  request  of 
the  corporation  managers.  Whether  this  policy  was  or  was  not 
sound,  the  Board  publicly  adopted  it,  urged  thereto  by  the  gas 
corporations.  It  went  into  the  reports  of  the  Board  as  early  as 
1889;  all  your  rate-regulation,  from  that  time  to  this,  has  been 
upon  the  express  basis  that  a  reasonable  dividend  upon  the 
capital  paid  in  (the  investment)  should  be  the  capital  charge, 
and  that  surplus  funds  accumulated  out  of  excess  earnings  were 
a  trust  fund,  a  return  upon  which  was  no  part  of  the  capital 
charge  to  be  reckoned  in  a  fair  price  for  gas. 

The  following  language  from  the  Annual  Eeport  of  1889,  p. 
24,  expressed  this  doctrine  with  absolute  clearness: 

"The  stockholders  of  a  company  are  entitled  only  to 
fair  and  reasonable  dividends  on  the  actual  amount  of 
cash  they  have  paid  in.  The  money  used  in  the  exten- 
sion and  improvement  of  the  plant,  paid  out  of  surplus 
earnings,  should  not  be  capitalized,  but  should  be  used 
for  the  benefit  of  consumers  in  reducing  the  price  of 
gas." 

"Here,  twenty-two  years  ago,  was  the  clear  and  definite  state- 
ment made  by  this  Board  to  the  effect  that  surplus  earnings 
"should  not  be  capitalized  but  should  be  used  in  reducing  the 
price  of  gas''  There  could  be  no  clearer  declaration  of  the 
public  policy  of  this  Commonwealth.  Apparently  all  of  the  gas 
companies  of  the  Commonwealth  joined  in  urging  this  doctrine 
upon  the  Commission.  None,  until  within  the  last  few  years, 
have  ever  dissented  from  it ;  and  then  only  when  in  the  hands  of 
speculators  who  were  seeking  to  capitalize  the  surplus  already 
too  great. 

Similar   language,   applying    the    same   doctrine  in   various 
cases  litigated,  is  found  almost  all  through  the  reports.    I  cite, 
without  quoting  in  extenso  the  language  used,  the  following: 
1890,  the  Amherst  Gas  case; 
1894,  the  Springfield  Gas  case; 

1894,  the  East  Boston  Gas  case.  In  this  case  the  Commis- 
sion called  attention  to  the  fact  that  such  surplus  not  only 
enabled  a  lower  price  to  be  given,  but  "gives  strength  to  the 
corporation  .  .  .  and  that  it  should  not  be  treated  as  the  ex- 
clusive property  of  either"  corporation  or  the  consumers. 


29 

See  also  the  Report  for  1894,,  the  Roxbury,  So.  Boston  & 
Dorchester  cases. 

1895,  the  Cambridge  Gas  case. 

1895,  the  Haverhill  Gas  case.     In  this  case  the  doctrine  was 
pushed  even  beyond  the  limits  originally  laid  down,  and,  as  I 
think  the  Board  now  concedes,  beyond  reason.    The  Board  then 
said:     "The  consumer  for  the  time  being  of  any  well-managed 
quasi-public  corporation  gets  advantages  from  the  payment  made 
to  the  company  by  the  consumers  of  the  past.     The  consumer 
of  the  future  should  therefore  be  regarded  by  the  board  of  con- 
trol, and  enough  should  be  paid  by  the  present  consumers  to  pro- 
vide for  the  natural  growth  of  the  community." 

The  mandate  then  issued  to  the  effect  that  the  consumers  of 
Haverhill  should  love  their  children  and  provide  capital  for  fur- 
nishing them  with  gas,  has  been  fully  complied  with.  The  pres- 
ent difficulty  is  that  the  speculative  interests  now  in  control  of 
the  Haverhill  Gas  Company  are  seeking  to  divert  this  capital 
furnished  by  the  ancestors  of  the  present  consumers,  to  their  own 
benefit. 

See,  also,  the  Report  for  1895,  the  Worcester  Gas  case. 

1896,  the  Melrose  Gas  case. 
1901,  the  Haverhill  Gas  case. 

1901,  the  Special  Lynn  report. 

1902,  the  Worcester  Electric  case. 
1910,  the  Beverly  case. 

We  have,  then,  a  case  where  the  public  policy  of  this  Common- 
wealth has  permitted  the  creation  of  these  surplus  funds  to  se- 
cure the  corporations  and  their  stockholders  against  actual  or 
hypothetical  risks,  with  the  distinct  agreement  and  understand- 
ing that  they  were  not  to  be  capitalized,  but  were  to  be  held  in 
trust  to  meet  the  contingencies  for  which,  in  part  at  any  rate, 
they  were  accumulated,  and  if  not  so  used,  for  the  benefit  of  the 
consumers. 

The  question  presented  by  this  and  other  cases  today  is, 
whether  this  Board  is,  of  its  own  option,  to  reverse  itself, — to 
transmute  the  exactions  which  it  has  permitted  during  a  quarter 
of  a  century  into  extortions.  Avowedly  it  has  approved  the 
levying  of  prices  for  gas  higher  than  was  necessary  to  pay  the 
cost  of  manufacture  and  a  reasonable  return  upon  the  capital 
furnished  by  the  stockholders  of  the  corporations.  If,  now,  that 
excess  in  price  is  to  be  transmuted  into  capitalization,  it  amounts 


30 

to  retroactive  rack-renting  of  the  gas  consumers  of  the  Common- 
wealth. It  makes  the  policy  of  the  Commonwealth  a  fraud  ab 
initio. 

Now  I  submit  that,  although  this  policy  was,  in  the  light  of 
subsequent  histor}7,  erroneous,  it  was  entered  upon  by  this  Com- 
mission in  entire  good  faith,  urged  thereto  by  the  corporate  in- 
terests of  the  Commonwealth;  that  these  corporations  and  none 
of  them  can  now  be  heard  to  say  that  that  policy  shall  be  made 
a  fraudulent  one;  that  this  Commission  would  stultify  itself, 
officially  and  personally,  if  it  gave  ear  to  such  a  proposition. 

When  the  anti-confiscation  powers  of  the  Supreme  Court  of 
the  United  States  are  invoked,  and  the  Court  is  called  upon  to 
deal  with  any  question  of  local  public  policy  or  express  or  im- 
plied agreement  between  a  state  and  its  corporate  creatures,  it 
will  deal  with  each  situation  as  it  finds  it;  if  a  value  for  fran- 
chises has  been  made  by  the  state  whose  regulation  is  under  at- 
tack, part  of  the  property  on  which  rates  must  be  based,  that 
Court  will  refuse  to  allow  that  property  to  be  confiscated.  By 
the  same  token, — if  excess  contributions  have  been  made  by  con- 
sumers under  an  agrement  that  they  shall  be  held  for  the  benefit 
of  consumers  unless  required  for  a  depreciation  fund,  this  Com- 
mission may  safely  assume  that  the  Supreme  Court  of  the  United 
States  will  not  make  itself  a  party  to  a  breach  of  an  agreement 
or  to  working  a  fraud  upon  the  gas-consuming  public.  Confisca- 
tion is  really  nothing  but  fraud;  the  Supreme  Court  will  pro- 
hibit it.  Extortion  is  another  form  of  fraud;  that  Court  will 
not  assist  it. 

I  conclude,  therefore,  that  there  is,  and  has  for  many  years 
been,  in  the  City  of  Haverhill  a  surplus  fund,  and  that  in  it  the 
gas  consumers  have  an  equitable  right.  I  stand  in  my  argument 
of  this  case  on  the  doctrine  laid  down  by  the  Commission  in 
1889  and  ever  since, — that  this  surplus  cannot  be  capitalized, 
either  directly  or  indirectly,  and  that  therefore  a  rate  must  be 
made  allowing  no  return  upon  the  surplus  accumulated  out  of 
the  excess  prices  hitherto  paid  by  gas  consumers  of  this  com- 
munity. 

Assuming  then  that  you  are  to  stand  by  the  policy  you  have 
established  and  are  to  protect  the  trust  funds  you  have  caused 
to  be  created,  what  return  to  capital  must  now  be  reckoned  in 
the  price  of  gas  in  Haverhill?  In  answering  this  question  con- 
sider three  points : 


31 

(a)  Any  proper  system  of  regulation  penalizes  mismanage- 
ment,, of  which  extortion  is  the  worst  sort, — as  it  rewards  effi- 
ciency and  moderation  in  charges  for  the  use  of  capital.     This 
Company  has  paid  34%  dividends  for  13  years;  no  more  divi- 
dends should  be  allowed  out  of  current  earnings  until  the  aggre- 
gate of  these  13  years  of  extortions'  pro-rate  a  fair  return  over 
the  past  and  a  dividendless  future.     They  have  "eaten  their 
cake."     You  cannot  treat  them  as  you  would  a  company  that 
has  paid  only  reasonable  dividends  during  these  13  years.     To 
reckon  in  the  price  for  gas  10%  on  $75,000,  the  old  and  gener- 
ously-reasonable dividend  rate,  is  to  say  that  corporation  sin  has 
no  wage  of  penalty, — is  to  offer  a  reward  for  like  extortions  by 
other  corporations,  for  that  the  worst  that  can  happen  to  such 
corporations  is  to  have  a  period  of  extortions  ended  by  a  return 
to  the  primrose  paths  of  generous  dividends. 

(b)  There  is  still  in  existence  a  depreciation  fund  too  large; 
it  should  be  reduced ;  this  can  only  be  done  by  putting  the  price 
so  low  as  to  permit  no  dividends  out  of  current  income. 

Dividends  to  a  reasonable  amount,  however,  could  legally  be 
paid  and  charged  to  the  surplus  or  depreciation  account.  If  this 
policy  resulted  in  a  debt,  that  is  no  objection;  such  debt  might 
in  time  be  properly  the  basis  of  new  capital.  This  goes  on  the 
assumption  that  no  excessive  dividends  have  in  fact  been  paid, — 
contrary  to  the  truth.  But  it  relieves  present  consumers  from 
any  further  present  contributions  for  capital  account ;  it  permits 
them  to  have  back  in  the  form  of  reduced  prices  part  of  what 
has  unjustly  been  extorted  from  them.  It  is  just  and  legal  that 
this  should  be  done. 

Obviously,  under  either  of  these  theories,  the  price  for  some 
time  to  come  cannot  exceed  50  cents. 

(c)  But  an  argument — not  sound — can  be  made  to  the  effect 
that  the  extortions  of  the  past  are  irremediable," that  the  present 
depreciation  fund  should  be  kept  intact;  that  therefore  the  cor- 
poration should  be  put  back  on  a  generous  dividend  basis  reck- 
oned on  its  capital  of  $75,000.     On  this  theory  the  price  of  gas 
would  be  not  over  58  cents — 60  cents  would  be  excessive, — it 
would  include  a  dividend  of  more  than  10%  to  this  much  sin- 
ning corporation. 

No  one  will  now  claim  that  excessive  prices  should  continue 
to  be  charged  in  order  that  a  further  surplus  may  be  built  up  to 
furnish  new  temptation  for  new  speculators.  This  Commission 


32 

has  in  the  last  few  years  been  plainly  taught  that  the  successful 
administration  of  a  public-service  utility  requires  that  excessive 
profits  are  as  great  a  danger  as  inadequate  profits.  Inadequate 
profits  discourage  new  investment.  Excessive  profits  invite  into 
the  public-utility  field  speculators,  and  drive  out  investors4  What 
we  want  in  this  Commonwealth  is  that  our  public-utility  securi- 
ties should  be  absolutely  safe  and  that  the  return  thereon  should 
be  uniform ;  it  should  never  be  great,  nor  should  it  ever  be  small. 
I  am  well  aware  that  the  proposition  of  60-cent  gas  will  cause 
hysterics,  but  you  must  face  the  facts.  When  I  first  argued  for 
$1.00  gas,  nearly  20  years  ago,  the  suggestion  was  greeted  with 
scorn  and  laughter.  Yet  everybody  knows  today  that  the  Lynn 
Gas  Company  is  making  more  money  than  it  ought  to  make  on 
75-cent  gas.  Look  at  the  quotations  of  the  stocks  of  our  gas  com- 
panies. I  cut  the  following  from  a  recent  issue  of  the  Banker  & 
Tradesman : 

Par.  Bid.  Asked. 

Abington  &  Rockland  Light  &  Power  Co 100  190  195 

Cambridge    Elec.    Light    Co 100  295  300 

Cambridge  Gas  Light  Co 100  .  270  275 

Charlestown  Gas  &  Elec.  Co 50  122  125 

Edison  El.  111.  Co.,  Brockton 100  199  202 

Fall  River  Elec.  Light  Co 100  197  200 

Fall  River  Gas  Works  Co 100  310  315 

Fitchburg  Gas  &  Elec.  Lt.  Co 50  120  125 

Lawrence  Gas  Co 100  208  210 

Lowell   Elec.  Light  Corp 100  210  215 

Lowell  Gas  Light  Co 100  297  300 

Lynn  Gas  &  Elec.  Co 100  415  420 

Mass.  Lighting  Companies 100  124  126 

New  Bedford  Gas  &  Edison  Light  Co 100  300  305 

Pittsfield  Electric  Co 100  190  200 

Springfield   Gas  Light  Co 100  275  280 

Worcester  Elec.  Light  Co 100  280  285 

Worcester  Gas  Light  Co 100  290  295 

You  may  safely  assume  that  when  the  stocks  of  the  corpora- 
tions under  your  control  reach  a  market  value  of  two  or  more 
times  the  par  value,  regulation  has  failed  adequately  to  protect 
the  public  rights.  When  Mr.  Prichard's  Lynn  Gas  Company 
sells  gas  for  75  cents  and  its  stock  is  still  selling  for  $415,  it  is 
high  time  for  this  Commission  to  make  some  radical  rulings  rela- 
tive to  the  fair  price  of  gas. 

The  Commission  should  not  overlook  that  it  is  making  rulings 


33 

not  merely  for  the  present,  but  for  the  future.  Nothing  could 
be  blinder  and  more  fatuous  than  the  policy  now  urged  by  many 
who  claim  that  they  represent  "capital  and  enterprise  and  stand 
for  conservative  theories."  The  simple  test  of  both  justice  and 
expediency  between  the  investor  and  consumer  is  this:  What 
must  the  public  pay  for  the  use  of  capital  in  order  to  have  the 
investor  willing  and  anxious  to  continue  to  put  it  at  the  public 
service  ?  Wise  administration  seeks  merely  to  put  consumer  and 
investor  on  good  trading  terms.  No  one  will  go  into  a  new  en- 
terprise for  the  public  benefit,  involving  a  risk,  as  most  new  en- 
terprises do,  unless,  if  success  be  reached,  more  than  a  mere 
interest  or  investment  rate  be  allowed  as  a  return  upon  the  cap- 
ital. Hazard  must  be  paid  for.  It  follows,  of  course,  that  the 
original  capital  invested  in  a  public  utility  that  succeeds  is  en- 
titled to  have  substantially  more  than  an  interest  or  mere  inves- 
ment  rate,  and  that  right  continues  to  attach  to  the  original 
capital  invested.  It  does  not  attach  to  subsequent  moneys  put 
in  for  the  extension  of  the  enterprise  after  the  day  of  hazard  has 
passed  and  the  corporation  can  consequently  obtain  all  the  money 
that  it  needs  at  ordinary  investment  rates. 

Now,  this  Fourteenth  Amendment  theory  of  capitalization 
will  throttle  and  destroy  new  enterprises  and  prevent  the  public 
from  getting  the  benefit  of  new  utilities.  For  illustration,  we 
need  in  New  England,  as  they  already  have  in  the  West,  heating 
plants,  sending  heat  through  pipes  in  the  streets.  Suppose  that 
$1,000,000  be  invested  in  this  enterprise  in  this  City  of  Haver- 
hill  with  a  public  franchise  in  the  streets  of  Haverhill,  all  the 
money  being  carefully  invested  in  the  plant  itself  so  that  in  the 
beginning  there  is  actually  $1,000,000  of  property  offered  for 
the  public  use.  It  begins  to  depreciate  instantly.  Pending  the 
struggle  to  educate  the  public  into  the  merits  of  the  new  enter- 
prise, the  investors  lose  year  by  year  for  five  years  $100,000 
ur,  until  at  the  beginning  of  the  sixth  year  there  is  only 
$500,000  of  property  invested  in  this  public  utility.  Then  the 
heat-users  invoke  the  Fourteenth  Amendment  theory  and  a  rate 
must  be  made  on  a  capitalization  of  $500,000  only.  The  invest- 
ors have  lost  irrevocably  one-half  of  their  $1,000,000.  It  is  im- 
material that  the  enterprise  then  begins  to  succeed  and  profits, 
without  exorbitant  rates,  begin  to  be  made.  The  rate  is  based 
upon  the  $500,000  of  property.  The  heat-users  owe  no  duty  as 
to  the  half  million  of  dollars  lost. 


34 


Such  a  policy  is  unjust  and  inexpedient — both.  As,  between 
investors  and  heat-users,  when  the  enterprise  finally  begins  to 
achieve  success,  a  rate  should  be  made,  not  to  give  a  return  upon 
$500,000,  but  as  nearly  as  may  be  upon  $1,000,000,  and  the 
gradual  accumulation  of  a  fund  to  make  up  the  $500,000  already 
lost,  until  the  entire  investment  is  restored,  and  a  rate  made  so 
as  to  give  a  fair  return  upon  the  entire  investment  of  $1,000,000. 
The  community  served  by  capital  risked  should,  if  the  service 
proves  to  be  a  really  valuable  and  successful  one,  return  to  the 
investor  all  the  capital  risked  with  a  return  thereon  measured 
fairly  in  the  light  of  the  risks  taken  as  one  chief  factor. 

This  Commission  is,  and  for  some  years  has  been,  under 
a  tremendous  pressure  to  abandon  a  sound  and  just  policy  mak- 
ing for  new  investments  in  new  enterprises,  making  for  the  de- 
velopment of  all  kinds  of  public  utilities  as  yet  hardly  dreamed 
of,  in  order  to  open  the  field  for  a  conscienceless  exploitation  of 
surpluses,  actual  and  alleged,  of  existing  utilities,  all  the  hazards 
for  the  development  of  which  were  long  ago  paid  for,  and  which 
are  now  required  but  to  be  managed  carefully  and  conservatively, 
although  of  course  progressively.  The  policy  urged  upon  this 
Board  is  a  revolutionary  one, — destructive  of  real  enterprise;  it 
would  put  a  premium  on  speculation ;  it  would  discourage  sound 
investment  and  prudent  management. 


THE  EEAL  REPRODUCTION  VALUE. 


But,  in  view  of  the  fact  that  the  Commission  felt  bound  to 
admit  the  evidence  offered  by  the  Company  as  to  the  reproduc- 
tion value  of  its  property,  and  also  somewhat  because  of  the  fact 
that  this  community  has  been  lobbied  into  a  delusive  belief  as  to 
the  enormous  value  of  the  accumulation,  I  felt  required  to  have 
a  valuation  made  by  a  competent  expert  in  whose  fairness  and 
judgment  the  Commission  would  have  some  confidence.  Mr. 
Alton  D.  Adams  is  that  expert,  and  as  to  him  I  desire  to  say  a  few 
words :  This  Commission  recognizes  the  difficulty  of  getting  on 
the  public  side  of  these  questions  any  man  who  has  had  long 
experience  in  the  building  and  management  of  gas  companies. 
Nearly  all  gas  engineers  are  tied  up  with  the  capitalistic  inter- 
ests; they  cannot  afford  to  take  the  consumer's  side  in  these 
ratf  <  '  for  the  public  that  there  is  a  man  of 

Mr.   Adams's   ability,  training,  experience  and   absolute   integ- 


35 

rity, — a  man  from  whom  one  cannot  get  an  opinion  with  the 
slightest  taint  of  dishonesty  in  it ;  a  man  for  whom  one's  respect 
grows  as  one  knows  him  more.  I  am  glad  to  say  this  about  Mr. 
Adams.  In  this  case  and  on  this  question  of  reproductive  cost, 
Mr.  Adams,  both  in  ability  and  in  fairness,  stands  in  striking 
contrast  to  the  witnesses  on  the  other  side. 

As  to  Mr.  Eoyce, — though  undoubtedly  under  some  circum- 
stances a  competent  engineer,  it  is  enough  to  say  that  he  is  a 
party  to  the  exploitation  scheme ;  and  that  therefore  his  evidence 
given  here  is  entitled  to  little  weight.  His  original  statement  put 
in  in  the  stock  case  for  the  purpose  of  getting  $900,000  more  of 
capital  stock,  and  repeated  in  this  case,  is  in  essentials  absurd.  A 
few  typical  instances  only: 

He  values  the  meters  at  $52,332,  more  than  the  cost,  new, 
without  any  depreciation  whatever,  although  meters  are  testified 
to  have  a  life  of  only  25  years  and  many  of  the  meters  in  use 
must  be  of  that  age.  Services,  $45,000,  with  no  substantial  de- 
preciation. He  had  in  his  estimate  of  mains, — perhaps  an  in- 
advertence, as  the  others  were  not, — a  large  quantity  of  wrought 
iron  as  cast  iron.  The  following  table  prepared  by  Mr. 
Adams  shows  the  way  Mr.  Eoyce  figures  when  fixing  up  a  perma- 
nent load  for  the  backs  of  Haverhill  gas  consumers. 

Some  values  given  by  F.  P.  Eoyce  on  old  Haverhill  Gas  Maine 
and  on  Springfield  Mains. — See  Springfield  gas  case,  March, 
1905,  No.  438.  Document  5. 

Inch  Springfield  Haverhill  Ft.  in  Excess  value 

Main  Cts.  per  foot  Cts.  per  foot  Haverhill  Haverhill  Rate 

3  30  50  97,398  $19,479 

4  40  60  80,519  16,103 
6        60  80  75,529  15,105 
8        80  100  756  151 

10       100       125        18,328         4,582 
12       150       175         1,534  283 

16       200        250         3,247          1,623 

$57,326 

Moreover,  in  the  Springfield  case  Mr.  Eoyce's  cost  for  cast  iron 
pipe  was  from  $27.00  to  $29.00  per  ton;  whereas  it  is  now  worth 
$22.00  per  ton,  i.  e.,  in  the  Springfield  case  iron  was  worth 
about  25%  more.  Allowing  for  this  difference  in  the  cost  of  iron 
it  will  be  observed  that  Mr.  Eoyce's  Haverhill  figures  are  in 
many  instances  nearly  double  his  Springfield  figure?. 

}lr.   Ivovro's  valuation  is  entitled  to  no  serious  discussion. 


36 


As  to  gas  experts  Chase  and  Jackson,  it  is  impossible  to  speak 
without  laughter.  Mr.  Chase  is  undoubtedly  a  good  book-keeper. 
He  holds  himself  forth  as  a  "certified  accountant;"  and  a  certi- 
fied accountant,  as  nearly  as  one  can  make  out,  is  one  who  claims 
to  be  an  expert  on  everything,  from  running  the  United  States 
to  managing  a  Dipsomaniac  Hospital.  We  had  to  wait  for  him 
a  while,  as  he  was  in  Washington  helping  President  Taft  man- 
age the  United  States.  He  undertook  to  qualify  himself  as  a 
gas  expert.  He  said  in  the  early  part  of  his  testimony  that  he 
was  a  gas  expert.  After  he  had  been  cross-examined  a  little 
while,  he  concluded  (and  said)  that  he  ceased  to  be  a  gas  expert 
20  years  ago. 

Professor  Dugald  C.  Jackson  is  Professor  6f  Electrical  Engi- 
neering in  the  Institute  of  Technology.  I  have  no  reason  to 
doubt  he  is  a  good  professor  of  Electrical  Engineering.  He  said 
he  had  never  testified  as  an  expert  in  a  gas  case  before;  and  I 
suggest  that,  out  of  regard  for  his  own  reputation  and  that  of 
the  Institution  of  which  he  is  a  member,  he  should  never  so 
testify  again.  We  had  to  wait  for  him  a  while  as  he  was  in 
London  advising  the  British  Government  in  its  weightier  mat- 
ters. He  seemed  to  have  an  impression  that  by  giving  a  list  of 
the  learned  societies  with  which  he  is  connected  and  making  his 
direct  testimony  reek  with  statements  of  the  "care"  that  he  had 
exercised, — even  stating  that  he  had  gone  around  the  streets  to 
verify  the  Company's  maps  of  mains, — the  cross-examination 
would  be  formal  only,  and  that  his  ipse-dixit  would  be  taken  as 
the  last  word  by  this  Commission.  Before  I  had  finished  with 
him  on  cross-examination,  I  found  that  he  knew  next  to  nothing 
about  gas  matters;  that  he  had  taken  the  heavier  weights  of 
water  pipe  instead  of  the  weights  of  gas  pipes  for  all  the  under- 
ground mains;  that  he  figured  his  reproduction  cost  on  the 
mains,  not  upon  the  present  values,  but  upon  an  alleged  average 
of  27  years, — some  $5.00  a  ton  higher  than  the  present  price; 
that  he  testified  to  taking  the  average  price  because,  as  he  put  it, 
it  would  be  "unfair"  to  take  the  present  prices,  they  being  lower ; 
that  he  indicated  his  fairness  as  between  investor  and  public  by 
asserting  in  the  same  breath  that  he  took  the  present  values  of 
land,  although  much  higher  than  the  cost  values.  It  is  no  won- 
der that  the  Highway  Commission  is  in  trouble,  when  it  has  as 
an  adviser  an  alleged  expert  who,  in  dealing  between  public 
utility  and  user,  takes  the  cost  when  the  cost  is  higher,  and  the 


37 

value  when  the  value  is  more  than  the  cost, — so  that  the  con- 
sumer must  lose,  and  cannot  profit,  out  of  the  reproduction- 
value  theory. 

I  eliminate  from  serious  discussion  gas  experts  Chase  and 
Jackson.  A  prettier  pair  of  parroting  poseurs  were  never  pre- 
sented for  the  purpose  of  promoting  or  protecting  the  perpetra- 
tion of  any  predatory  project. 

It  is  no  wonder  that  Mr.  Tyler  in  effect  abandoned  these  two 
witnesses  in  his  final  argument  yesterday,  and  put  the  stress  of 
his  claims  on  what  Mr.  Prichard  of  the  Lynn  Gas  Company 
said. 

What  shall  be  said  as  to  Mr.  Prichard's  evidence  in  the  case? 
Of  course,  Mr.  Prichard  is  a  very  competent  gas  engineer.  I 
cross-examined  him  in  the  Salem  case  some  years  ago;  and  I 
know  of  his  adroitness  in  being  on  both  sides  of  the  same  prop- 
osition— of  minimizing  depreciation  charges  when  assisting  the 
Holyoke  Gas  Company  to  get  a  high  price  for  its  plant;  and 
magnifying  depreciation  when  helping  the  Salem  Company  get 
a  high  price  for  gas.  He  is  as  unfair  as  he  is  competent. 

The  circumstances  of  his  appearance  in  this  case  make  his 
testimony  of  no  weight.  Eepeatedly  during  the  summer,  Mr. 
Tyler,  when  I  was  urging  the  completion  of  the  case,  said  he  had 
no  other  witnesses  except  Mr.  Eobb,  and  got  delays  on  his  assur- 
ance that  his  case  was  substantially  completed.  The  Company, 
not  the  City,  raised  the  issue  of  reproductive  value  on  its  Four- 
teenth Amendment  theory.  To  meet  that  claim  on  the  facts  we 
put  on  Mr.  Adams  in  rebuttal.  We  know  no  sur-rebuttal  in 
Massachusetts  trials.  The  Gas  Company  was  bound  to  put  in 
all  its  evidence  on  value  before  it  rested  its  case.  Yet,  in  the 
face  of  both  express  agreement  and  waiver  of  right  by  resting 
his  case  before  Mr.  Adams  gave  his  evidence  on  valuation,  it 
wa?  sought  to  put  in  Mr.  Prichard's  views  of  value  to  affect  the 
weight  of  Mr.  Adams'  irrefutable  figures  and  opinions, — and 
thus  to  get  "both  ends  and  the  middle"  of  the  trial.  A  fair 
sample  of  the  "fairness"  of  this  Gas  Company's  dealings  !  When 
the  Commission  made  its  astounding  and  unprecedented  ruling 
admitting  Mr.  Prichard's  evidence,  I  refused  (and  properly)  to 
cross-examine, — to  drag  this  case  over  many  more  weeks  of  trial. 
The  result  was  that  Mr.  Prichard  gave  a  garbled  and  inaccurate 
statement  of  some  parts  of  Mr.  Adams'  evidence,  demolished 
some  men  of  straw;  and  that  farce  ended.  This  Commission 


38 

knows  that  if  Mr.  Prichard  were  faced  on  cross-examination,  as 
he  would  have  been  if  he  had  been  produced  in  order,  by  his 
evidence  in  the  Holyoke  case,  he  could  not  have  increased  Mr. 
Adams'  careful  and  conscientious  estimate  of  the  reproductive 
value  of  this  plant. 

There  is  no  evidence  in  this  case  comparable  in  weight  with 
that  of  Mr.  Adams.  It  will  be  worth  all  that  this  trial  has  cost 
the  people  of  Haverhill  to  have  at  last  on  the  record  the  com- 
petent and  careful  testimony  of  this  capable  and  conscientious 
man  as  to  the  real  value  of  this  gas  plant  for  gas-making  pur- 
poses. When  next  they  deal  with  the  question  of  municipal  own- 
ership they  will  have  some  reliable  guide  as  to  the  probable 
amount  they  will  have  to  pay  for  the  property  they  have  already 
in  large  part  paid  for. 

Moreover,  every  member  of  this  Commission  is  a  real  gas  ex- 
pert. We  join  with  the  Company  in  requesting  that  the  Com- 
mission make  a  finding  as  to  the  fair  value  of  the  property  used 
and  necessary  to  be  used  for  gas-making  purposes.  Not  that 
such  finding  is  necessary  to  a  proper  decision;  but  to  show  any 
Court  into  which  this  Company  dare  take  either  the  stock-water- 
.ing  case  or  the  rate  case,  how  extensive  and  groundless  is  the 
scheme  of  extortion  now  being  promoted.  <cLet  there  be  light !" 
Set  forth  the  real  facts. 

What  is  the  full  and  fair  reproductive  value  of  the  property 
of  this  Company — for  gas-making  purposes,  not  for  some  other 
purposes — and  including  only  property  used  and  necessary  to  be 
used  for  gas-making  purposes  ?  The  test  is,  what  would  willing 
purchasers  having  like  franchises  and  rights  in  the  streets  pay 
for  this  plant  rather  than  build  another  one — on  the  same  site 
or  on  another  site?  It  matters  not  what  it  would  cost  to  re- 
duplicate the  particular  parts  of  this  plant;  no  unbiased  and  un- 
forced purchaser  would  pay  the  cost  of  putting  two  3  or  4-inch 
pipes  in  the  same  street  when  one  6  or  8-inch  pipe  is  needed. 
Nor  is  the  site  to  be  taken  at  its  value  for  other  purposes;  for 
gas-making  it  is  worth  no  more  than  land  equally  available  for  a 
gas  plant  can  be  bought  for. 

Mr.  Eoyce  admits,  though  unwillingly,  that  this  is  the  true 
method;  but  neither  he  nor  any  other  witness  for  the  Company 
followed  it.  See  p.  424,  where  he  says,  in,  reply  to  a  question 
"as  to  whether  an  old  company  can  under  any  circumstances  be 
entitled to  receive  a  return  upon  a  larger  valuation 


than  a  new  company  could  furnish  equivalent  facilities  for/7 — 
"No,  I  don't  think  they  could." 

Mr.  Adams  states  his  results  in  two  parts,  first  valuing  all  the 
existing  property  used  and  necessary  to  be  used,  at  its  value  for 
gas-making  purposes,  and  on  the  assumption  that  it  is  subject 
to  no  depreciation  because  of  non-adaptation  to  the  needs  of  this 
gas-using  community,  i.  e.,  that  a  new  company  would  build 
exactly  this  sort  of  plant;  that  therefore  every  part  has  full  cost 
value  except  as  lessened  by  age  and  use.  On  this  basis  his  sum- 
mary is  as  follows: 

SUMMARY. 
Value   of  the   Plant  of  the  Haverhill  Gas  Light   Company  as   of 

June  30,  1911.     By  Alton  D.  Adams. 

Plant  Items.  Totals. 

Land    $11,488 

Buildings    58,176 

Holders    105,585 

Tanks    6,204 

Boiler   Plant 5,267 

Machine    Tools 642 

Gas   Machinery 51,524 

Works    Pipes 12,290 

Mains  and  Services 151,809 

Meters    31,713 

Furniture,  Horses  and  Wagons 3,737 


$438,435 
6  per  cent  for  Engineering,  Interest,  etc 26,306 

$464,741 
Deduct  amount  for  excess  capacity 36,172 


$428,569 
Add  for  Working  Capital 20,000 


$448,569 

This  summary  of  values  is  based  upon  the  theory  that  all 
property  referred  to  therein  is  used  and  necessary  to  be  used  for 
the  gas  business;  that  is,  no  depreciation  has  been  allowed  by 
reason  of  inadaptation  of  any  part  of  this  property  to  the  actual 
and  prospective  needs  of  a  company  making  and  distributing  gas 
in  Haverhill.  It  therefore  greatly  exceeds  the  value  which  a 
willing  purchaser,  having  an  exclusive  right  to  do  the  gas  busi- 


40 

ness  in  Haverhill,  would  pay  for  this  property  rather  than  build 
a  substitute  plant. 

Mr.  Adams  testified  that,  testing  the  value  of  this  property  by 
what  the  willing  purchaser,  having  his  option  either  to  buy  or  to 
build  a  substitute  plant,  would  be  justified  in  paying,  i.  e.,  what 
he  would  advise  a  capitalist  coming  new  into  Haverhill  to  pay 
for  this  plant  rather  than  to  build  a  new  plant  in  a  new  location, 
he  would  have  to  discount  $100,000  from  the  values  above  stated, 
making  the  total  value  of  the  plant,  used  and  necessary  to  be 
used  for  gas-making  purposes,  not  exceeding  $350,000. 

A  few  of  the  main  reasons  for  this  substantial  discount  are, 
that  the  removal  of  the  plant  from  the  Winter  Street  site  is  inev- 
itable within  a  few  years, — long  before  the  buildings  and  the 
machinery  there  located  will  wear  out.  The  location  of  the  hold- 
ers is  not  a  good  one.  Moreover,  the  manufacturing  plant  is  now 
some  distance  from  the  holders;  in  cold  weather  there  is  waste 
in  running  two  steam  plants.  This  inevitable  removal  will  cause 
tremendous  loss  not  only  on  the  buildings,  but  also  in  the  mains 
around  the  works,  necessitating  a  readaptation  of  a  considerable 
part  of  the  distribution  system.  It  is  common  knowledge  in 
Haverhill  that  this  removal  has  been  under  discussion  for  very 
many  years,  probably  for  15  years;  and,  indeed,  Mr.  Eoyce  ad- 
mits that  his  concern  carefully  considered  removing  before  they 
re-habilitated  the  plant  in  the  old  location,  and  expects  that 
before  very  many  years  they  will  have  to  move.  In  spite  of  this, 
however,  they  have  put  an  excessively  large  water-gas  plant  on 
this  little,  narrow  strip  by  the  railroad,  thus  putting  the  Haver- 
hill Company  entirely  at  the  mercy  of  the  makers  of  the  price 
of  oil,  instead  of  putting  in  a  mixed  coal-and-water-gas  plant, 
as  the  best  engineers  are  now  doing  in  cities  the  size  of  Haver- 
hill. A  pure  water-gas  plant  is  not  worth,  in  proportion  to  its 
cost,  as  much  as  a  mixed  coal-and-water-gas  plant.  In  this  con- 
nection I  may  say  that  I  find  myself  forced  to  the  conclusion  that 
a  substantial  part  of  the  recent  expenditures  made  have  been 
made,  not  from  the  engineering  standpoint,  but  from  the  stock- 
watering  standpoint. 

Moreover,  the  distribution  system  in  Haverhill  is  bad.  It  has 
a  larger  percentage  of  small  mains  than  almost  any  other  city 
whose  figures  are  available.  In  many  streets  there  are  two  small 
mains  where  there  ought  to  be  one  large  one;  of  course  leakage 
and  repairs  are  much  larger.  The  distribution  system  of  Haver- 


41 

hill  cannot  be  figured  upon  the  value  of  the  iron  laid,  less  depre- 
ciation by  reason  of  age ;  a  large  deduction  must  be  made  by  rea- 
son of  inadequacy  and  ill-adaptation  to  the  needs  of  the  com- 
munity. Mr.  Adams  makes  a  deduction  of  20%  from  his  figure 
of  $151,000  for  the  mains,  and  a  still  larger  deduction  on  the 
buildings,  works,  pipes  and  gas  machinery. 

The  plain  truth  is  that  this  plant  is  a  badly  located,  poorly- 
adapted  water-gas  plant,  that  it  has  been  badly  engineered  for  at 
least  a  dozen  years.  The  more  one  examines  into  the  details,  the 
more  mythical  and  groundless  do  the  claims  of  large  values  made 
in  recent  years  become. 

My  own  view,  if  I  may  venture  to  express  it,  is  that  Mr. 
Adams's  figures  are  still  too  high.  It  seems  to  me  that  if  you 
test  the  value  of  this  property  as  you  would  test,  for  instance,  the 
value  of  a  cotton  mill  where  no  public  franchise  was  involved, 
having  always  in  mind  that  the  test  is  whether  the  old  should  be 
bought  or  a  new  substitute  should  be  constructed, — that  the  value 
put  by  Mr.  Adams  on  this  old  plant  would  not  be  paid  by  any 
purchaser  having  a  free  choice. 

Note  also  as  to  the  summary,  that  it  puts  the  value  of  the 
land,  not  at  what  the  actual  site  on  Winter  Street  may  be  worth 
for  a  shoe  factory  or  for  some  other  purpose,  but  the  maximum 
price  at  which  another  company  coming  to  Haverhill  could  obtain 
a  site  adapted  to  gas  purposes.  Really  Mr.  Adams  figured  at  15 
cents  a  foot  for  an  adequate  area;  but  the  evidence  showed  that 
there  were  several  perfectly  available  sites  which  probably  could 
be  obtained  for  one-third  of  that  figure.  He  does  not  include 
in  this  valuation  of  property,  used  and  necessary  to  be  used  for 
gas-making  purposes,  certain  items  of  property  that  the  present 
company  actually  owns  but  does  not  use,  nor  need  to  use,  for  gas- 
making  purposes.  These  items  of  property,  of  course,  are  addi- 
tional assets  belonging  to  the  Company,  which  the  Company  can 
sell  or  dispose  of  as  they  please;  but  which  are  not,  properly 
speaking,  a  part  of  the  gas-making  plant.  The  chief  items  of 
this  rejected  property  are — Essex  Street  land,  $15,000;  Merri- 
mas  Street  land,  $25,000;  supplies  and  merchandise,  $29,613, — 
mostly  stuff  on  hand  for  the  reconstruction  of  the  plant;  sundry 
other  small  items  amounting  to  $12,463, — making  a  total  of 
$82,076.  Of  course,  if  the  Company  needs  to  use,  and  should 
use,  one  of  these  lots  of  land  for  an  office  building,  it  might  then 
be  properly  a  part  of  the  gas  plant  and  treated  as  such  for  all 


48 

purposes.  In  fact  it  does  not  so  use  this  land,  nor,  on  the  evi- 
dence before  this  Commission,  would  any  new  company  think  of 
buying  either  of  these  business  blocks  as  a  part  of  a  gas  plant. 

But  Stone  &  Webster  say  that  they  paid  over  $600,000  for 
this  property,  and  the  Commission  admitted  this  evidence  as 
having  some  tendency  to  show  what  the  property  might  be  worth. 
No  court  would  ever  have  admitted  it.  It  was  not  a  sale  within 
the  meaning  of  the  sensible  rule  that  sales  in  the  open  market 
are  competent  to  show  values. 

But,  passing  this  weighty  objection,  it  does  not  even  appear 
that  Stone  &  Webster  had  any  valuation  of  the  property  made 
by  engineers  before  they  made  the  purchase.  Mr.  Eobb's  testi- 
mony seems,  indeed,  to  show  that  they  did  not  rely  at  all  upon 
an  engineer's  estimate  in  making  the  purchase.  Nor  does  it 
appear  that  there  was  not  some  ulterior  purpose, — financial  deal- 
ings perhaps  connected  with  the  settlement  of  the  bankrupt  es- 
tate of  E.  H.  Gay  &  Co.  (like  the  Hudson  Kiver  Power  Com- 
pany) inducing  them  to  make  this  purchase.  But  another  and 
perhaps  more  important  motive,  which  may  explain  the  payment 
of  this  extraordinary  price,  is  the  fact  that  the  City  of  Haverhill 
had  started  to  take  this  plant  for  a  municipal  plant.  Now,  if 
there  is  anything  that  a  concern  like  Stone  &  Webster,  who  are 
now  engaged  in  exploiting  at  tremendous  profit  to  themselves 
public-utility  plants  all  over  the  country,  do  not  want,  it  is  mu- 
nicipal ownership.  To  stop  a  movement  of  that  kind  in  Massa- 
chusetts cities  may  well  be  worth  several  hundreds  of  thousands 
of  dollars  to  them.  Moreover,  their  whole  attitude  in  this  case, 
particularly  again  Mr.  Eobb's  testimony,  shows  that  what  they 
really  paid  for  was  not  plant,  but  franchise.  They  were  ready 
to  pay  a  big  price  because  of  their  belief,  unfortunately  too  well- 
grounded  in  historical  fact,  that  under  the  regulation  hitherto 
administered  in  this  Commonwealth,  gas  consumers  could  and 
would  be  compelled  to  pay  prices  which  would  give  a  return  on  far 
more  than  the  fair  re-productive  value  of  the  property  used  and 
necessary  to  be  used.  This  Commission  can  have  no  doubt  that 
$600,000  was  from  two  to  three  times  the  fair  re-productive  value 
of  this  plant,  when  Stone  &  Webster  bought — not  really  the 
plant  at  all — but  the  stocks  and  bonds  of  the  Haverhill  Gas 
Securities  Company. 

It  would  be  a  strange  proceeding  if  this  Commission  should 
allow  its  judgment  as  to  the  value  of  gas  properties  to  be  influ- 


43 

enced  by  the  price  paid  for  a  control  of  gas  property,  based  in 
large  part  upon  the  Commission's  failure  hitherto  to  make  effec- 
tive reasonable  and  just  prices  for  gas. 

IV. 


REGULATED  MONOPOLY  AND  MUNICIPAL  OWNEK- 

SHIP. 

Legalized  monopoly  under  the  regulation  of  this  Commission 
is  really  in  competition  with  municipal  ownership.  Bad  as  our 
municipal  ownership  law  is — and  I  may  note  in  passing  that  the 
law  was  drawn,  not  for  the  purpose  of  facilitating,  but  of  pre- 
venting municipal  ownership, — this  Commission  cannot  expect 
to  command  in  the  long  run  general  public  support  unless,  fairly 
compared,  the  results  of  legalized  monopoly  under  its  regulating 
control,  are  as  good  service  at  as  low  rates  as  may  be  reasonably 
expected  under  municipal  ownership. 

Just  what  the  gas  consumers  of  Haverhill  would  have  had 
under  municipal  ownership  is,  of  course  to  some  degree,  specula- 
tive,— but  not  too  speculative  to  make  interesting  and  pertinent 
a  comparison  between  what  they  have  had  and  what  they  might 
have  had  if  they  had  taken  this  plant  over  in  1886,  when  Massa- 
chusetts created  this  regulating  Commission.  The  comparison, 
in  brief,  is  as  follows : 

The  amounts  paid  by  the  Haverhill  Gas  Company  to  or  for 
the  benefit  of  its  owners  are  as  follows : 
1886-1896,  dividends  10%  per  annum,  11  years...   $82,500.00 

1897,  14%  9,750.00 

1898,  "          50%  37,500.00 

1899,  20%  15,000.00 

1900,  «          30%  22,500.00 
1901-1910  Payments  to  Haverhill  Gas  Securities  Co.  249,373.86 


Making  a   total  of $416,623.86 

This  is  an  average  dividend  for  25  years  of  about  22  1-5%. 

But  this  is  not  all  the  sums  that  these  gas  consumers  have  been 
compelled  to  pay  in  their  gas  prices,  on  capital  account.  (And 
note  in  this  connection  that,  on  any  theory  of  the  surplus  fund, 
it  cannot  be  repaid  in  cash  to  gas  consumers ;  the  most  that  can 
be  claimed  for  it  is  that  in  equity  it  is  to  be  held  for  the  benefit 


44 

of  both  consumers  and  stockholders,  or  so  applied  as  to  give 
greatly  reduced  prices.)  The  consumers  have  also  contributed  to 
a  depreciation  or  surplus  fund.  In  1887  the  total  assets  of  the 
Company,  according  to  its  books,  were  $91,878.07.  In  1910,  the 
total  book  assets,  deducting  the  worthless  claim  against  the  Hav- 
erhill  Gas  Securities  Company,  not  an  asset  at  all,  were  $764,- 
871.99,  or  $672,993.92  more  than  they  were  24  years  ago.  The 
Company,  therefore,  claims  that  in  these  24  years  it  has  in- 
creased its  assets  out  of  net  earnings  about  $28,000  a  year.  But, 
as  already  shown,  this  result  is  reached  by  the  process  of  padding 
for  the  purpose  of  stock- watering ;  the  actual  increase  is  nothing 
like  $28,000  a  year.  A  fair  estimate  of  the  increase  of  the  prop- 
erty out  of  excess  earnings  during  these  25  years  is  $10,000  a 
year, — amounting  to  $250,000  in  the  25  years.  As  the  Eeports 
of  this  Board  do  not  show  a  return  of  the  assets  of  the  company 
until  1887,  the  increase  figure  is  really  for  24  years  and  not  for 
25 — a  slight  error  in  favor  of  the  Company — but  practically 
immaterial.  This  estimate  of  $250,000  increase  is  substantially 
less  than  the  increase  shown  by  the  assessors'  valuation  in  the 
City  of  Haverhill,  for  during  the  same  period  they  have  in- 
creased the  assessed  valuation  from  $122,500  to  $439,525,  an  in- 
crease of  $317,025. 

Another  method  of  testing  this  estimate  is  by  taking  the 
aggregate  of  the  balances  of  the  Gas  Manufacturing  Account  for 

24  years,  which  is  $902,923.17,  and  deducting  the  amounts  paid 
in  direct  and  indirect  dividends  as  above  set  forth  for  the  same 
period  of  24  years,  which  is  $416,623.86,  which  leaves  something 
over  $486,000  as  money  apparently  earned  and  not  paid  out  to 
stockholders.     If  we  allow  something  over  one-half  of  this  for 
repairs  and  depreciation  not  already  charged  up  in  operating 
expenses,  we  must  be  up  to  the  facts,  even  taking  into  account 
the  fact  that  this  manufacturing  plant  has  been  junked  twice; 
and  that  it  has  had  (what  Stone  &  Webster  say  by  their  acts), 
bad  engineering  in  putting  in  the  plant  they  have  taken  out,  and 
what  Mr.  Adams  says  is  bad  engineering  in  putting  in  the  plant 
that  they  have  just  put  in. 

Taking  this  $10,000  a  year  as  the  consumers'  excess  contribu- 
tion, and  adding  this  to  the  dividends  actually  paid,  we  have  a 
total  contribution  to  capital  made  by  these  gas  consumers  of 
$666,623.86  for  the  whole  period,  or  $26,664.95  a  year  for  these 

25  years,  an  average  of  35.5%  on  the  $75,000  of  capital. 


45 

Assuming,  on  the  other  side,  that  the  City  of  Haverhill  had 
taken  this  gas  plant  in  1886  or  1887,  when  its  book  value  was 
a  little  over  $90,000,  and  its  value  assessed  for  taxes  was  $122,- 
500, — what  would  the  City  have  had  to  pay  for  the  plant?  Its 
book  values  would  have  been  evidence  against  it.  Assessed  value 
for  taxation  purposes  gives  us  a  basis  for  fair  inference.  '  One 
hundred  and  fifty  thousand  dollars,  or  twice  its  capitalization,  is, 
in  my  judgment  a  high  price  to  estimate  that  the  City  would 
have  had  to  pay  for  this  property  in  1886.  I  do  not  concede  that 
the  plant  was  worth  $150,000  in  1886,  or  that  the  City  ought 
to  have  been  required  to  pay  substantially  more  than  one-half  of 
that  sum.  But  I  am  assuming  that,  as  usual  in  Massachusetts, 
Haverhill  would  have  had  to  pay  a  large  premium  for  its  free- 
dom from  the  gas  tax  gatherer.  I  have  resolved  all  doubts  on 
both  sides  of  the  account,  in  selecting  figures,  against  municipal 
ownership.  The  City  could  clearly  have  borrowed  this  money 
at  5%,  which  would  have  made  an  annual  carrying  cost  of 
$7,500,  which  in  25  years  amounts  to  $187,500. 

Actual  payments  under  private  ownership  to  capital 

($75,000)  during  the  25  years $666,623.86 

Estimated  payments  under  municipal  ownership  for 

the  same  period 187,500.00 


An  advantage  from  municipal  ownership  of $479,123.86 

for  25  years, — an  average  of  $19,164.95  a  year. 

Municipal  ownership  costs  per  annum $7,500.00 

Private  ownership  costs  per  annum 26,664.95 

or  more  than  31/0  times  as  much. 

Nor  can  anything  be  conceded  to  the  common  claim  of  superior 
efficiency  of  management  under  private  ownership.  During  the 
years  1886  to  1898  inclusive  the  management  was  probably  good; 
I  remember  getting  a  good  impression  of  the  competency  and 
faithfulness  of  Mr.  Stratton,  the  old  Superintendent.  But  since 
the  speculators  got  control  in  1899,  the  management  has  been  far 
more  inefficient  than  even  a  very  badly  managed  municipal 
department. 

If  the  City  of  Haverhill  as  a  municipality  could  have  had 
the  benefit  of  the  taxation  (for  it  is  such)  levied  upon  its  citizens 
by  its  Gas  Company,  it  would  have  gone  far  to  defray  the  ex- 


46 

penses  of  the  school  houses  necessary  in  this  thriving  and  intelli- 
gent community. 

These  results  of  legalized  monopoly  are  typical  except  as  to 
degree.  We  must  .have  municipal  ownership:  our  "regulation" 
has  given  us  piracy. 


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